C&I Loans Surpass All-Time High as Economic Recovery Takes Hold

Commercial and industrial loans outstanding climbed to a record, eclipsing the previous mark set in October 2008 just after the onset of the credit crisis, as a revival in the U.S. economy spurs more lending.

C&I loans increased to $1.6128 trillion in week ended Jan. 1, according to data released today by the Federal Reserve. The amount had dropped to $1.197 trillion in October 2010 before registering positive growth every month since then, the data show.

Lenders are extending credit lines as default rates hover near a record low and the economic recovery is taking hold. The central bank’s measure of maintaining its benchmark interest rate at about zero for a sixth year has fueled the growth of C&I loans, led by smaller banks, according to Fitch Ratings.

“There’s probably some aggressive underwriting on C&I loans, with weaker covenant structures and pricing is very competitive, especially among smaller banks,” Bain Rumohr, an analyst at Fitch, said in a telephone interview. “The pendulum is swinging back to a more normal environment after underwriting tightened up significantly coming out of the crisis. There will be more growth in the space this year.”

The amount of C&I loans from smaller banks grew more than 8 percent in 2013, or almost one third of the $115 billion loan-book growth for those institutions, according a Jan. 8 Fitch report.

Barclays Plc (BARC) has revised its global-growth estimate to 3.5 percent to 3.4 percent due to the easing of the pace of fiscal tightening, improvement in financial conditions and balance sheets, and the associated reduction in uncertainty, according to a report today.

Better Forecast

The bank revised U.S. economic growth forecast for the previous quarter to 3 percent from 1.5 percent, based on recent stronger data on consumer spending and trade.

Borrowings for working capital or to finance expenditures increased 7.5 percent in 2013, the third consecutive annual gain after shrinking 5.5 percent in 2010 and 19 percent in 2009, according to data compiled by Bloomberg. The proportion of loans on which companies failed to honor payments tumbled below 1 percent for the first time in the quarter ending Sept. 30, Fed data show.

Even as banks loosen lending standards, deposits exceeded loans by $2.39 trillion, up from the depth of the financial crisis when the amount of deposits was about equal to loans outstanding. The previous record high for C&I loans was set in in October 2008 at $1.6124 trillion, according to Fed data.

The U.S. central bank has kept its target rate in a range of zero to 0.25 percent since December 2008. The Fed last month trimmed its monthly bond purchases to $75 billion from $85 billion, taking the first step toward unwinding the unprecedented stimulus that Chairman Ben S. Bernanke put in place to help the economy recover from the worst recession since the 1930s.

To contact the reporter on this story: Sridhar Natarajan in New York at snatarajan15@bloomberg.net

To contact the editor responsible for this story: Faris Khan at fkhan33@bloomberg.net

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