Are banks lending now?
Are they lending enough?
No: not for their own optimum well-being nor that of the economy.
A recent survey of 821 banks in a five-state area, of which Colorado is one, turns up some intriguing numbers.
As of the end of the third quarter of this year, only 42 of these banks posted robust loan growth of 25 percent or better, barely 5 percent of the total number of institutions.
Another 169 showed new loan growth of 10 to 24.9 percent, while 329 saw their portfolios increase by 0.01 to 9.9 percent, and 281 showed either no growth, or a decline in total loans outstanding. The no growth category is only 34 percent of the bank total. Sounds like things are moving along OK, right.
Well, not exactly. In banker babble, a 5 percent annual loan growth is like, well, standing still or worse. Here’s why: Without an expanding loan portfolio banks wither. This is because depositors keep putting money in the bank, and it has to be put to work. Otherwise, it just sits there and slowly sinks the institution.
Right now, banks are awash in cash as the economy improves, with individuals and business accruing more cash that finds its way into bank accounts. But banks are in the same position as everybody else: They can’t get much of a return on acceptable liquid investments.
Viewed in this light, 610 banks in the group, a whopping 74 percent, had no, or mediocre, loan growth. In this aggregation of institutions, almost three quarters of them aren’t doing the lending job they were doing in, say, 2005.
Banking wants desperately to reverse this situation, but there simply aren’t enough loans that meet current criteria to go around. There are a lot of dollars chasing relatively few loan assets.
There’s no doubt that, leading up to the Great Recession, a lot of lending was done that shouldn’t have been, even by the standards then prevailing. Equally, it’s certain that today deserving borrowers are going begging because they got passed by as the regulatory pendulum swung the other way.
The banks are constrained by the regulators from doing these good, but now orphaned, loans. The regulators are being told by their agencies to tighten the screws, while the agencies are heeding Congress’ call to never in the future (or within 15 years, whichever comes first) let the meltdown of ’08 happen again.
All good intentions, but it sure doesn’t make borrowing money any easier.
Pat Dalrymple is a western Colorado native and has spent almost 50 years in mortgage lending and banking in the Roaring Fork Valley. He’ll be happy to answer your questions or hear your comments. His e-mail is firstname.lastname@example.org.