| July 18
July 18 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
"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, 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 reported 6 percent growth in lending to businesses.
KeyCorp and Fifth Third Bancorp 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
, 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