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Banks have the money but not the qualified borrowers

Banker's Hours
Pat Dalrymple
Glenwood Springs, Colorado CO
Pat Dalrymple
ALL |

Banks are awash in cash. With a flat economy, and investment outlays being curtailed or postponed, especially in the housing sector, money’s going into financial institutions and just sitting there.

Bankers are getting desperate to put their money to work, and are having a hard time doing it. A recent survey by a top Colorado banking consultant revealed that regional banks are paying depositors the lowest rates in some 80 plus years, and still are having a tough time making a profit on their spreads, the difference in what they pay for money and what they put it out at.

Banks simply can’t find enough good loans, and other investments are paying just north of zilch. One respondent in the survey said that his institution had made a commercial real estate loan at 1.75 percent at 50 percent loan to value on an “owner occupied” building, meaning that the borrower’s business used the structure. If you’ve got the right creds, it’s easy to borrow money. If, say, you’re an established cardiologist, with maybe $500K in annual income and a million or so in the bank, and you’d like to get a loan on your medical office building, you can pretty much write your own ticket. However, if you fit that profile, you should probably wear shades: The bankers will be on you like paparazzi at a JLo sighting.



Unfortunately, lenders are finding that the supply of wealthy heart doctors, and others of that ilk, is extremely limited.

The institutions that are hurting the most are those that, before the meltdown, had a big chunk of their portfolios in commercial real estate loans, construction loans and land development deals. There simply aren’t enough of those assets around today. (Ag banks, on the other hand, are doing pretty well, mostly. Agriculture is a pretty healthy segment of the economy.)



Slowly – actually, ponderously – banks are moving into residential real estate lending, but the tentative effort isn’t enough to sop up all of the liquidity, and probably won’t be, given the difficulty in making proportionately large balances of these assets fit the commercial bank model.

So banks will just have to wait until the economy creates more borrowers that are qualified to use the cash sitting in the vaults. In the meantime they’ll be compelled to put one of banking’s classic rules on hold.

You know, the 3-3-3 rule: “Pay 3 percent on your deposits, mark it up by 3 percent, and be on the golf course by 3:00.”

Pat Dalrymple is a valley native. He’s been in the mortgage and banking business since 1961. He’ll be happy to answer your questions or hear your comments. His e-mail is dalrymple@sopris.net.


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