As 2010 winds down, many executives are wondering where loan growth will come from next year and beyond. Indeed, the outlook for growth is cloudy for the commercial real estate and residential mortgages that many community banks and thrifts counted on for growth in prior years. In response, some institutions are contemplating entering new lending businesses. However, the reality is that entry into new businesses, such as C&I lending, will require a significant investment of capital and will take a significant amount of time to generate adequate financial returns.
For selected institutions, we feel the commercial real estate lending opportunity is significant and warrants a close examination. In early 2010, the Congressional Oversight Panel projected that about $1.4 trillion in CRE loans will come due between 2010 and 2014. Banks and thrifts hold over half of the total amount of CRE debt outstanding and many analysts believe the CRE market has stabilized nationally. However, a number of institutions will be disqualified from offering refinancing. According to CPG’s analysis1, approximately 1,500 institutions will not be able to compete for these refinancing opportunities either because they are troubled or because they exceed the regulatory guidelines for CRE concentration risk. This is especially true in the southeast, where over a third of the banks headquartered there are out of contention. Executives at healthy institutions that are also below the regulatory guidelines for CRE concentration should consider how they can capitalize on the CRE refinancing wave, particularly by targeting the better customers of competitors that cannot offer refinancing.
1. CPG analysis of third quarter 2010 data from SNL Financial, LC, 2010. The Texas Ratio was calculated for a list of the 7,164 current bank holding companies, commercial banks, and savings banks provided by SNL. CRE concentration risk was calculated for a list of the 6,456 current bank holding companies and commercial banks provided by SNL.