Recently, bankregdata.com published yield and funding data on bank C&I loans. According to this information, banks had $1.533 trillion in C&I loans on the books at the end of the 1Q 2013, which is up 24% since 2Q 2010. That’s the good news. The bad news? The spreads on C&I loans have declined since the end of the recession, standing now at 2.85% at 2Q2013 according to the fed.
These low C&I spreads couldn’t have come at a worse time. More banks are entering the market for C&I loans, and, really, what choice do they have? It’s one of few bright spots of growth in the industry. More competition, coupled with the more aggressive competition we are seeing in many markets, suggests one thing: spreads are likely to go down even further.
If ever there was a time to get the sales, underwriting, monitoring, and renewal processes right, this is it. Underwriting efficiency, pricing discipline, and robust risk management practices will be paramount in generating acceptable risk-adjusted returns in the business – and the strength of these will separate the winners from the losers.
It also won’t hurt to have a compelling value proposition to stand out from the crowd and create some pricing advantage in an increasingly irrational marketplace.