Finance Firms Chip Away at Banks' Business Lending

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Finance Firms Chip Away At Bank's Business Lending

Finance companies have defied the laws of gravity this year.

Despite the free-fall in business borrowing from banks and the commercial paper market, the amount of business credits held by the nation's finance companies has continued to rise in 1991, albeit at a slow pace.

As the amount of outstanding commercial and industrial loans shrank by more than $30 billion in the first nine months of this year, outstanding business credits held by finance companies rose by $15 billion, according to Federal Reserve Board data.

Trend Likely to Continue

Banks' loss of market share to finance companies shows no sign of abating.

Though finance companies are certainly not immune to the kinds of asset quality problems afflicting commercial banks, these companies generally are in better shape right now - and in position to exploit their growing competitive strength.

"We're not as concerned about the impact of nonperforming commercial real estate and HLT-type loans on the balance sheets of finance companies as on commercial banks," said John Lonski, senior economist at Moody's Investors Service.

That's because finance companies didn't go into these areas to the same extent as the banks, he added.

Enviable Credit Rating

Westinghouse Credit Corp. stumbled badly by making a lot of commercial real estate loans that have since gone sour.

Despite its problems, though, the single-A credit rating of Westinghouse is the envy of some of the nation's biggest commercial banks.

Meanwhile, General Electric Capital Corp. has made no secret of its interest in buying some of the assets of Westinghouse Credit.

GE Capital has been closing in on General Motors Acceptance Corp. as the nation's biggest finance company, and the purchase of Westinghouse assets would bring it even closer.

The gap between General Motors Acceptance and GE Capital, ranked first and second, respectively, narrowed markedly in 1990, according to a survey by American Banker.

Business Credits

When it comes to business lending, the gap is also narrowing between finance companies and commercial banks.

At the end of September, domestic finance companies had a total of $307.6 billion of outstanding business credits on their books. …