Magazine article American Banker

Comment:Tighter Spreads Got You Asking Whether to Lend?

Magazine article American Banker

Comment:Tighter Spreads Got You Asking Whether to Lend?

Article excerpt

Today's earnings squeeze can be difficult for lenders to deal with.

Costs of money market certificates of deposit are rising as the Federal Reserve has raised interest rates, yet the yields available on loans have generally not moved up to match this increase.

The result, as Roberta M. Probber, an analyst at Ryan, Beck & Co., has spelled out in that firm's weekly Banking Review, is that banks must decide "to lend or not to lend."

Ms. Probber wrote that, since lending today is not as profitable as a few months ago because of the margin squeeze, some banks have concluded there is no reason to push for growth.

There are, however, a number of institutions that feel they simply cannot turn off the spigot. These banks look upon the yield squeeze as a marketing opportunity to gain business by making loans at rates other banks will not match.

What banks are in this category?

First, there are those that are converting from thrift institutions to commercial lenders. They look at the hesitancy of others to lend at today's rates as an opportunity to show the commercial marketplace that they mean business, both literally and figuratively.

Second, some banks are trying to make inroads with companies in a new territory.

Both circumstances require an investment in marketing. But aggressive lending might not be as expensive as it first appears if the lender has a low average yield on the assets already on its books. Then lending without raising rates actually improves average yield on assets. …

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