Tag Archives: small business lending

FDIC Quarterly Report Shows Upsurge in Bank Lending

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

Brighter outlook for small business lending

In recent quarters, there has been significant growth in U.S. commercial lending, with many leading banks predicting that this strong recovery will continue in 2012. And now the small business lending market, which has been in the doldrums since the onset of the financial crisis in 2008, is starting to show some signs of life.

JPMorgan Chase reported today that it grew EOP business banking loans for the fifth consecutive quarter in 4Q11.  Business banking loan originations increased 24% in 2011 (although the stop-start nature of the recovery is seen in the fact that business banking originations were down 4% y/y in 4Q11).

Other positive signs in the small business loan market:

  • The most recent issue of the Federal Reserve’s Beige Book highlighted a pickup in business loan demand (some leading banks have claimed that weak demand, rather than more restricted access to credit, has been the main impediment to small business loan growth).
  • There are signs of improvement in the broader economy (notably a decline in unemployment rate) , and these macroeconomic factors tend to have a strong impact on consumer and small business optimism.
  • And small business optimism is indeed recovering. The National Federal of Independent Business’s Index of Small Business Optimism rose 1.8 points to 93.8 in December, which is still below the key 100-point threshold, but up from a low of 81 in March 2009. Signs of an improved outlook can also be seen a recent TD Bank small business survey.

So, banks have significant opportunities to build their small business franchises.  However, many banks need to recognize that they have suffered reputational damage in recent years, and should focus on developing an integrated sales and marketing strategy to re-position themselves as a trusted provider of financial products, services and advice to U.S. small businesses.