The time is ripe to tap your company’s relationship bank for that credit-line increase or business expansion loan you’ve been contemplating.
Why? Three reasons.
First, bankers are in a good mood. The Bank Confidence Index from Promontory Interfinancial Network for the first quarter tallied 50.5, a 2.4-point improvement over the pervious quarter and the highest rating since the second quarter of 2016. (The index tracks bankers’ expectations of access to capital, loan demand, funding costs, and deposit competition.)
A majority of the 370 U.S. bankers responding to the survey were highly enthusiastic about the U.S. economy. About 63% said economic conditions had improved for their banks compared with 12 months ago; only 5% said things had gotten worse. Many credited the Trump administration with improving macro conditions. About 51% said the recent tax reform will enable them to grow their companies. And as a result of the lower corporate tax rates, 40% said they would increase wages for employees and 29% pay higher dividends.
Key to the lending business, 37% of bankers expected improved access to capital for their institutions over the next 12 months, with the bulk saying access would remain stable.
The second reason the timing is right to land a commercial loan is that banks are starting to reap higher profits from lending, and the existing commercial credits on bank’s balance sheets are performing well.
While FDIC-insured banks saw their combined net income in the fourth quarter fall 3.5% due to the enactment of the Tax Cuts and Jobs Act, combined net interest income was up 8.5% last quarter, while noninterest income only rose 0.3%. Net interest margins were also higher last quarter, rising to 3.31%. Loans haven’t been that profitable since 2012. In addition, charge-offs for commercial and industrial (C&I) loans fell in the quarter, as did the percentage of C&I loans that were noncurrent. Meanwhile, quality troubles with credit card loans are on the rise, and mortgage loan volumes are dwindling.
The final and third reason why it’s time to act: these optimal conditions (bankers inclined to lend, and at still-reasonable rates) won’t last. The Promontory survey showed that 78% of banks experienced higher funding costs last quarter, and 89% expected higher funding costs in the next 12 months. What’s more, 80% expected the competition for deposits to heat up in the next 12 months. So, while banks expect to have access to capital, that capital (in whatever form it comes) will cost them more.
In other words, the good mood, or, as Mark Jacobsen, CEO of Promontory terms it, “the strong case of positivity” prevalent among normally cautions bankers, isn’t here to stay. Take advantage of it now.