Commercial Lending on the Rise

By | Commercial mortgages, Lenders, Regulation

U.S. banks’ business loans are on pace to overtake residential mortgages for the first time since the 1980s. Commercial and industrial loans increased 8.5 percent in the first quarter from the year-ago period and accounted for about 21 percent of outstanding loan balances at U.S. banks, the highest level in 13 years, according to FDIC data released May 27. If they continue increasing at this pace over the next year, business loans would overtake residential mortgages at banks for the first time since 1988. In the first quarter, residential mortgage loans outstanding at U.S. banks increased 1.7 percent. Corporations generally kept their balance sheets in better order than consumers during the recession and are now more eager to borrow to fund expansion. Manufacturers, retailers, and other big companies have ramped up borrowing in recent months to get ahead of an expected rise in interest rates. “People borrow when they feel they have the capacity to repay debt, and the comfort level of both businesses and consumer is increasing,” says James Chessen, chief economist of the American Bankers Association.

Another possible reason for the change in the residential mortgages trend is the huge increase in compliance costs and regulatory requirements on residential mortgage lenders. See our post on this here.

via (wsj)