Lenders are exploring new niches to counter sluggish loan growth

0
29

[ad_1]

Coming out of pandemicmany consumers and businesses have cash and do not need loans yet. Result: Growth difficult.

But some banks stand out by focusing on unique areas of lending, accelerating the growth in loan demand in the early stages of the pandemic recovery.

“This is still a really difficult market for credit growth,” said Michael Jamesson, chief executive of banking consulting firm Jamesson Associates. “There is a ton of cash in the system and the traditional demand for loans is not that great. But if you have experience in a niche that is the exception to the rule, you may be one of the few who not only talks about credit growth, but also demonstrates it. “

Wintrust Financial in Rosemont, Illinois is one example. Excluding Paycheck Loans – government-backed small business loans that are gradually disappearing from banks’ books this year – the bank reported a $ 1.2 billion increase in second-quarter loans, or 15% year over year.

The bank’s first $ 47.6 billion insurance funding that finances commercial insurance premiums grew by $ 563 million from the first to the second quarter, accounting for more than a third of total growth. The division attracted new customers amid what Richard Murphy, vice chairman of Wintrust and chief credit officer, called growing interest in financial premiums due to ultra-low interest rates… These borrowers take out loans to pay insurance premiums.

In addition, the Life Finance division of the bank, which finances life insurance premiums, was up $ 248 million from the first quarter. Wintrust’s business has grown by about $ 1 billion over the past year, in part as more clients are benefiting from lower rates to expand life insurance as part of estate planning.

“Right now we feel quite comfortable with the momentum going at least until the end of the year,” at niche companies, Murphy said during a phone call about earnings last week.

For comparison: commercial real estate loans, bread and butter business for Wintrust along with most regional and public banks, grew by $ 134 million over the first quarter.

Wintrust expects that as consumers and businesses operate on the one-off savings accumulated during the pandemic, they will start borrowing more this year and next. Meanwhile, specialized lending can offset declines in traditional businesses and spur growth in the short term.

Signature Bank in New York paints a similar picture as Wintrust. Signature’s $ 96.9 billion banking division, which provides financing to the private equity industry, boosted the bank’s growth in the second quarter. Signature loans, excluding PPPs, boosted the company’s record of $ 3.92 billion from the previous quarter to $ 52.2 billion.

Fund banking unit balance sheets rose 33% quarter-on-quarter and doubled from a year earlier to $ 16.2 billion; now they account for almost a third of all loans. Stephens analyst Matt Breeze called the fund’s banking division “critical” to Signature’s growth in the face of stagnant lending.

Signed President and CEO Joseph DePaolo said in the income statement that the fund’s banking activity has been largely “new” in recent quarters and was a key driver of the bank’s loan growth in the second quarter.

PacWest Bancorp of Beverly Hills, Calif. Said its loans were up about 5% quarter-on-quarter, excluding PPPs, fueled by 17% growth in venture banking, which specializes in lending to entrepreneurs in the fast-growing tech industry. sector of California. Such loans account for almost a tenth of the bank’s entire portfolio.

In a statement of income, CEO of the $ 34.9 billion bank, Matt Wagner, called the growth of the venture capital business “outstanding” and vital to its second quarter results.

“Not every bank can occupy such niches,” Jamesson said. “Small public banks may not have the resources and see it as risky. But if you can swing it, that’s definitely an advantage right now.

According to the Federal Reserve, the total volume of loans and rentals in the United States at the end of the second quarter was virtually unchanged from the previous quarter at $ 10.35 trillion. Consumer loans grew gradually thanks to the rise in credit card spending. But general demand remains light.

“The entire industry faces challenging growth prospects,” said Wells Fargo analyst Jared Shaw.

Certainly more banks pursuit of acquisitions to get new loans, talented employees and enter new markets. Bank mergers and acquisitions have accelerated this year after a hiatus caused by the 2020 pandemic. hiring bank teams away from competitors in the hope of expanding into growing markets.

For example, BankUnited bank with assets of $ 35.7 billion. hired six bankers in the second quarter to help boost lending, and the Miami Lakes, Florida-based bank plans to hire more employees in new East markets. “We are on the lookout for talent every day,” Chief Operating Officer Thomas Cornish said last week.

Bankers say economic growth expected in 2021 – thanks to coronavirus vaccines unleashing pent-up demand – should spur more use of credit by consumers and businesses to finance purchases and investments. However, sustained growth in borrowing remains elusive, while mergers and acquisitions and entering new markets take time – and not for all banks. This reality makes organic creative growth important.

“I think you will see more regional companies, in particular, take the niche lending route,” Jamesson said.



[ad_2]

Source link