Expanding commercial and industrial (C&I) loans will become the focus for banks in the coming year as regional lenders continue to supercharge their asset base, giving financial executives more options to fund and expand operations into 2025.
Several banking leaders said during earnings calls last week that C&I has been the focus of their growth and will continue to be in the coming months.
“Overall, if you look at our performance year-to-date, we have really focused more on the C&I side, and you see our total growth for the year has been all on C&I,” said Kenneth Vecchione, CEO of Western Alliance Bancorporation, during an earnings call last week.
Vecchione added that C&I loans at Great Western grew by $4 billion year-over-year and currently account for 42% of Great Western’s held-for-investment loan portfolio, compared to 37% one year ago.
“We are working to reorient the balance sheet towards more C&I,” said Jeffrey Tengel, CEO of Independent Bank Corp, during their earnings call. “Over the last nine months, we've made steady progress towards generating solid C&I volume.”
Tengel added that Independent will continue to focus on C&I through “strategic hires in our core markets while evaluating select industry verticals.”
Banks are clamoring to get back into generating commercial loans after months of poor demand caused by high interest rates.
The net percentage of banks reporting stronger demand for commercial and industrial loans from large and middle-market firms nationwide has been at or below zero percent since the fourth quarter of 2022, according to the Federal Reserve Bank of St. Louis.
With the Federal Reserve Board cutting rates for the first time in over three years in September, banks are hoping that clients will jump back into C&I.
However, some argue that financial executives may not be ready to pull the trigger until a few more months of economic growth and after election-related uncertainty recedes.
“I think it's really more general middle-market C&I where you're just going to have to have that reduction in interest rates to get the stimulant of borrowing and animal spirits,” said Peter Sefzik, Senior Executive Vice President, Chief Banking Officer at Comerica Bank.
“It’s just based on the earnings calls that I've listened to and read about; it seems that credit is more benign than folks would have thought, and the economic environment is a little better,” said Vincent J. Delie, CEO of FNB. “I think there's a lot of wait-and-see right now. Once we get past the election, I do think, irrespective of who wins, there'll be demand in the C&I book in particular.”