Profitability of Commercial Loans at Banks May Increase as Demand for Commercial Loans Grows According to Latest Beige Book Report
Last week, the Federal Reserve released its latest Beige Book report, which summarizes opinions and anecdotal evidence on the economic activity in the Federal Reserve’s 12 Districts. According to some of the commentary in the Beige Book, improving economic conditions mean that lenders can reasonably expect to see greater demand for commercial loans which could lead to greater Profitability of Commercial Loans at banks in the coming months.
Evidence from the Beige Book that supports this statement include comments that a key driver of commercial lending, commercial construction, is starting to grow as it has “strengthened modestly in most Districts since the previous report.” The book also states that the demand for commercial loans is “generally strengthening in most Districts,” while credit quality “remains stable” and the lending environment itself “remains competitive in most districts.”
While the market for commercial loans continues to improve, additional news from The Fed this week does suggest that it is not all smooth sailing for either the economy as a whole or the commercial lending sector. As reported in an article in The Business Insider, Federal Reserve Chair Janet Yellen removed any doubt as to whether or not there will be a hike in interest rates later this year. While this will be the first increase in interest rates in over nine years, and it has been expected for some time, this increase still has the potential to both increase competition among lenders for high quality commercial loans, as well as to squeeze the margin of profit for these loans.
Increasing demand for commercial loans, and an increase in interest rates by the Federal Reserve, mean that now, more than ever, your organization needs a reliable loan pricing model. Instead of following the competition, a loan pricing model allows your loan officers to easily see how to make small changes in the structure of the loan in order to maximize loan profit while being able to offer rates and terms that remain competitive.
While the outlook for the economy is improving, risk remains. Don’t leave anything to chance, but contact us and ask how our PULPS Commercial Loan Pricing Model can give you the edge that you need to rise above your competition and capture a greater share of the commercial lending market.