Banks' Turning Loan Focus to Business Form People

By Moyer, Liz | American Banker, June 25, 1998 | Go to article overview

Banks' Turning Loan Focus to Business Form People


Moyer, Liz, American Banker


After years of wooing consumers with everything from no-fee credit cards to newfangled home equity loans, banks are shifting their focus to corporate America.

Commercial loan outstandings at the nation's 50 largest business lenders grew 6.81% in 1997, according to data compiled by Sheshunoff Information Services for American Banker. At the same time, consumer loan outstandings declined 0.27% at the largest consumer lenders.

The data, economists say, are the latest evidence that banks are pulling back from an overextended consumer market in favor of a robust corporate one.

"There has been a sense that the consumer market is pretty well tapped in this cycle and banks are turning their attention elsewhere," said David Levy, director of forecasting at the Jerome Levy Economic Institute in Mount Kisco, N.Y.

Strong corporate profits are fueling demand for bank loans as businesses invest in acquisitions and expansion, economists say. Meanwhile, consumers are increasingly turning to other sources for loans, such as mortgage companies and finance companies, as banks tighten their credit standards.

"These nonbank companies have become much more aggressive, and as a result, banks are losing their market share," said Sung Won Sohn, chief economist at Norwest Corp. in Minneapolis.

To be sure, some of the decline in consumer outstandings at the larger banks reflects the growth of asset securitization, which removes loans from bank balance sheets. But the evidence that corporate lending is on the rise is strong.

Indeed, for all U.S. banking companies-including small regionals that tend to hold loans on their books rather than sell them-commercial lending grew 5.91% in 1997, compared with 4.59% for consumer lending.

Though mortgage lending continues to surge, up 8.22% for all banks and 1.59% for the 50 largest, other types of consumer lending have been dragging down the business.

Twenty of the 50 largest consumer lenders in the study lost ground in 1997 as their portfolios shrank. BankBoston Corp. had the biggest decline-a drop of 18% from 1996.

Like many other banking companies, BankBoston last year divested consumer finance operations it deemed unprofitable. Fleet Financial Group, which saw its consumer loans grow 4.88%, also sold consumer finance operations last year.

Meanwhile, corporate lending at BankBoston and Fleet surged 14.63% and 7.79%, respectively, as the New England economy picked up steam, economists said.

Smaller regional banks logged the biggest gains in consumer lending, according to the study. Regions Financial Corp., Birmingham, Ala., had a 15.07% increase in consumer loans, and Old Kent Financial Corp., Grand Rapids, Mich. …

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