Academic journal article ABA Banking Journal

C&I Lending Still Looks Good

Academic journal article ABA Banking Journal

C&I Lending Still Looks Good

Article excerpt

The uptick in 1-4 family loans in 2004 certainly was due to the rise in real estate valuations. The annualized growth from 2004-2005, though, was far less than the prior year, and hasn't been as low since 2001. The recent drop in credit card loans is more indicative of the consolidation of the market and reflective of how much the market grew in prior periods. Consumers are still going to the banks to get loans and over all consumer loans increased, even though credit card loans fell (credit card loans are a subset of consumer). On the plus side, we are seeing relatively strong growth in commercial and industrial loans. The market has been waiting a long time for this growth and 2006 will most likely follow suit with moderate growth, as compared to credit card and consumer loans, which will likely be flat in 2006.

The loan/deposit ratio data would suggest that banks are running tighter than before when funding loans with deposits. This may be indicative of a slowdown in deposit gathering. Recall that deposits grew by fantastic amounts in 2002 and 2003. The market generally expected deposit growth to drop off. As the loan/deposit metric creeps up banks become less flexible from a liquidity perspective and could be in a higher-risk position if the economy were to change rapidly.

--John McCune, director, Financial Institutions Group, SNL Financial, Charlottesville, Va. …

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