The FDIC’s quarterly banking report shows signs of strong lending growth. As increased lending is a sign of growing economic confidence, this report is a positive indicator both for the industry, which has been struggling for revenue growth in recent quarters, as well as for the economy in general.
According to the FDIC:
- Total loans and leases rose 1% year-over-year (y/y) and 2% quarter-over-quarter (q/q) to $7.5 billion at the end of 4Q11. The charge-off rate was 1.37% in 4Q11, down 93 bps y/y and 9 bps q/q. The charge-off rate is now at its lowest level since the second quarter of 2008, just prior to the full onset of the financial crisis.
- Overall loan growth was driven by strong growth in commercial and industrial (C&I) lending. End-of-period C&I loans rose by 14% between 4Q10 and 4Q11, and by 5% between 3Q11 and 4Q11. The C&I net charge-off rate fell 76 bps y/y and by 5 bps q/q, to 0.78% in 4Q11.
- Drilling down into C&I lending, small business lending (defined as C&I loans of less than $1 million) fell 3% y/y, but rose 1% q/q, reflecting other recent indicators that banks are returning to small business lending. And it is notable that growth in small business lending is most evident among the largest banks.
So following a number of years of retrenchment, how well prepared are banks to ramp up their lending activity? To position themselves to benefit from an overall resurgence in lending, individual banks need to:
- Undertake a comprehensive assessment of their capabilities and processes, covering vital areas such as product portfolios; positioning and marketing activities, sales structure and support, as well as customer communications
- Benchmark bank performance against competitive best practices
- Identify operational areas that are under-performing, and
- Implement initiatives to quickly correct these deficiencies