Commercial lending drives loan growth for U.S. regional banks
(Reuters) - U.S. regional banks are ramping up commercial lending to compete more aggressively with their national rivals, offering lower rates and bigger, longer-term loans to win new business as the economy recovers.
Most of the big regional lenders reported double-digit percentage growth in commercial lending for the second quarter as businesses across the United States become more confident about borrowing.
"People are starting to increase inventory to build for a better economy and a better outlook in quarters three and four," Richard Davis, chief executive of U.S. Bancorp (USB.N), said after the bank reported earnings on Wednesday.
The downside of this renewed push into commercial lending is the impact on net interest margins, a closely watched measure of how much money banks make from their loans.
The U.S. economy was estimated to have grown by as much as 4 percent in the second quarter as the job market firmed and consumer spending improved.
Federal Reserve data published last week showed that commercial and industrial loans grew 12.6 percent in the second quarter, compared with just 5.9 percent a year earlier.
U.S. Bancorp reported a 12.4 percent rise in commercial loans by volume for the quarter. By comparison, Bank of America Corp (BAC.N) reported 6 percent growth in lending to businesses.
KeyCorp (KEY.N) and Fifth Third Bancorp (FITB.O) were close behind, recording increases of 11 percent and 10 percent respectively, a contributor to their beating analysts' estimates for the quarter.
U.S. Bancorp's stock has risen about 4.5 percent since the start of the year and shares of KeyCorp are up 3 percent. Among the regional banks that reported earnings this week, the top gainer in the year-to-date has been PNC Financial Services Group (PNC.N), up 8 percent.
Loans to businesses — particularly to borrowers in the food and retail sectors, in the case of U.S. Bancorp — have become more attractive to banks because they are performing so well.
Loss rates on commercial and industrial loans have fallen to 0.30 percent across the U.S. banking system, close to their lowest since the Federal Deposit Insurance Corp started reporting public data.
These rates hit 2.72 percent in the fourth quarter of 2009, in the wake of the financial crisis.
"Industry trends are positive for commercial lending generally, but an influx of liquidity has led to greater competition between industry participants," Macquarie Research analyst Vincent Caintic wrote in a note.
This competition, as well as lower asset yields and loan fees, was partly responsible for the decline in regional banks' net interest margins (NIM) for the second quarter.
"We have been pleased with the quality of our new loan originations, but we continue to see loan yields impacted by the competitive pricing environment," KeyCorp Chief Executive Beth Mooney said on a post-earnings conference call on Thursday.
Keycorp's NIM slipped to 2.98 percent for the quarter from 3.13 percent a year earlier. PNC Financial's NIM fell to 3.12 percent from 3.58 percent and similar declines were recorded by U.S. Bancorp and Fifth Third Bancorp.
Pressure on lending rates is not expected to ease before the Federal Reserve tapers its bond-buying program. The Fed has said it plans to end the program in October, ending an era of loose monetary policy that has helped to keep interest rates low.
(Additional reporting and writing by Anil D'Silva; Editing by Robin Paxton)
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