Commercial banks grew loan balances by 2.11% in the second quarter of this year compared to the first. This growth belies that some banks increased their commercial loan portfolios more than the industry average and other banks experienced shrinking loan volumes. While the industry is experiencing much needed total growth, that growth is not evenly distributed among banks.
If you look to improve the commercial lending customer experience, after the delivery of the term sheet, loan approval and explanation of documentation, walking borrower’s through financial covenants is another material event that impacts a borrower’s view and emotion around a bank’s brand. As we interview banks and borrowers that have the best rated customer commercial lending experience, it seems that this is an area many banks can improve on.
If your bank only offers fixed-rate loans to 5 years, you are probably competing against every other bank in your region with an identical product. If you cannot differentiate the loan product or the officer selling the product, you will surely compete on price, or, worse - on credit structure – not an enviable position for a bank. Some banks decide that they will create a “special bucket” of longer-term fixed rate loans in o
In this era of compressing margins and volatile rates, not having a prepayment provision on your loans is likely costing your bank a material amount of income.
The competition for qualified borrowers is intense, and both pricing and structure are being compromised. In our dealing with hundreds of banks and thousands of borrowers, we observe strategies and structures that have worked for our customers. In today’s competitive environment, it is important that bankers keep a close watch of what is working and think creatively to try to maintain structure and price. We would like to share ten strategies that we and other community banks have effectively deployed to win bus
The countdown to higher rates continues despite the drama in Greece and the retracement of China. There is little ambiguity that rates will increase shortly and the question we would like to address is how banks should position their balance sheets for the expected shape of the yield curve. Put another way, what will be the shape of the yield curve in the future and what are the implications for loans, securities and deposit structures?
Commercial real estate (CRE) lending for banks continues to be at near-record tight spreads because of the favorable economics. Property prices are up an average of 4.7% for the first quarter and are now 8.2% above their peak levels from back in 2007. At this pace, that is almost a 19% annualized rate. April’s Senior Loan Officer Opinion Survey indicates that banks continue to see stronger demand for CRE loans with 45% of them reporting easing their lending standards by tightening spreads.
When it comes to pricing fixed rate loans, we see banks do some crazy stuff. For example, if your bank is pricing off a fixed rate spread using a floating rate index such as Prime, then go directly to jail, don’t pass Go and don’t collect $200, - that is an asset-liability tragedy. It is also equally bad to just pull a fixed rate out of the air or base the fixed rate on the competition without knowing what the interest rate risk is. Given the recent pricing volatility, if your bank does that, you could find out that you are 20 or more basis points in the hole.
While we honor the Irish this St. Patrick’s Day, it is important that banker’s don’t leave loan profitability to luck. Given the talk of rising rates, we expect a rash of borrowers that have loans coming due in the next three years to want to refinance and lock in lower rates. Accordingly, our prepayment model for floating rate, adjustable and fixed rate loans expects loan prepayments to increase for community banks over the course of 2015 and 2016. This might be bad luck for some, but it is probabilistic for us.
This educational video was designed to give banks an introduction to what hedging can do for a bank and for a bank's customer in addition to managing their respective asset-liability position. CenterState Bank utilizes the Assumable Rate Conversion ("ARC") program to drive loan growth and makes the program available to all community banks nationwide. The ARC program allows banks to provide a fixed rate loan to their customers while receiving a floating rate asset - all without hedge risk or compliance.