Donald Trump’s surprising win last week will spawn important changes in the banking industry. While some of the potential regulatory relief has been well covered in banking publications, community banks should now consider how the immediate changes in interest rates and inflation expectations will influence borrower demand for credit, and how banks should respond to this change. Over the last two weeks, interest rates are up approximately 55 basis points as the market is interpreting a Trump presidential win to be more inflationary.
Tag: Bank Lending
In our previous blog (HERE), we considered the structure of commercial loan documentation and important objectives of certain agreements. We also discussed common loan concepts that are of particular importance to commercial lenders. Today, we cover some of the important provisions of the loan documents and explain some of the important considerations when definitive loan agreements are negotiated. Effective lenders must strike the right balance between protecting the bank and creating a workable document for the cust
Last week, we broke down how a quantitative bank may look at credit in order to get more accurate on their credit grades. Most banks do this to make sure they have their loan loss reserve levels correct. However, the better reason to invest in your credit model is to win more loans from the competition, while not being adversely selected. Today, we look at one of those two strategies that a bank might employ to drive out their competition from the marketplace or at least protect themselves from being driven out of business.
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
Yesterdays’ article on branding loans generated many comments. The most common question we received is to give finite examples of how to create a unique product in the marketplace to garner above average pricing.
This isn’t a personal question, but it is a question that is growing in popularity. Knowing that efficiency is highly correlated to return, many banks, including us, are taking a look at their largest processes (like lending) and going to their Gemba to do it. With more banks adopting a Six Sigma approach and with banks cutting obvious costs, now is time to reassess your banks production of credit, deposits and services. If you want to know more about how understanding your gemba can help in banking, read on.
We visit hundreds of bankers each quarter, and we note some of the following industry pressures: margin compression, decreasing credit standards and lack of earning assets. To combat these challenges, bankers are deploying various strategies, which include, adding business lines, hiring better talent, consolidating assets, streamlining some long-held processes and upgrading systems. But by far, the most prevalent answer from t
For non-investment grade C&I debt, such as the debt found in our National-to-Local C&I program, the current default rate for the whole sector has dropped to 0.44% in August as calculated by S&P. This excludes a default earlier in the year by Energy Future Holdings (EFH) which ran into problems during the downturn and has used several tactics to delay a bankruptcy. As a result, we exclude them from the analysis as it does not reflect current conditions.
You can ignore data when underwriting, but that would be a mistake as sometimes the differences are stark. Our best example comes from fresh data from the office supply sector. Normally, industry probabilities of defaults (“POD”) move by about 7% per year. In 2014 certain industries, like banks and retail office supply stores, moved with large rates of change and even multiple rates of change. While banks are moving in a positive direction and risk is being reduced, retail office supplies are moving in the opposite direction.
2013 property cash flows are starting to come in at many lenders and we have been taking a look at the data to see what insights can be gleaned that could give us an advantage. Combining bank data with data from the public markets, we can get a statistically valid sample size of over $130B worth of properties in almost all major metro and suburban markets (about 14% of the total CRE market). The below data may help banks when pricing and will give a clearer view of the risk profile when underwriting.