December 17, 2024 — Borrowers’ outlooks on loan growth and lending volumes are much more positive compared to this time last year.
As evidenced by data from S&P Global Market Intelligence, relative to the prior year, there was a significant reduction in the number of borrowers with negative expectations for loan growth over the next 12 months. In fact, two-thirds of borrowers stated that they expect to see an increase in loan volume over the next year. This growing confidence is fueled by several positive factors.
“Borrowers expect the commercial loan market to continue riding the tailwinds of 75 bps in recent cuts to the Federal Funds Rate, which have brought down loan prices and borrowing cost,” says Gregory Schneider, Director, Commercial Loan Analytics (CLA) at Coalition Greenwich. “Many also expect the market to get a further boost from tax reductions and more business-friendly policies from the incoming Trump administration.”
Some Banks No Longer Shying Away from CRE
The increasingly positive outlook for commercial lending can also be attributed in part to encouraging signs commercial real estate (CRE) lending. New data from the CLA group shows that CRE loan originations and renewals have grown slightly throughout 2024 as lenders and borrowers start to take advantage of the combination of falling interest rates and a roughly 12% decline in CRE property prices since the peak in 2022.
In addition, U.S. banks have been steadily reducing existing CRE exposures. In March 2023, CRE loan balances among U.S. commercial banks hit a peak of more than $890 billion. Those balances have fallen steadily as banks worked to run off CRE balances in the wake of the COVID-19 pandemic. According to Standard & Poor’s, the number of banks exceeding regulatory guidance for CRE concentration has now fallen for five consecutive quarters.
Together, these signs point to a possible revival of CRE lending. Although a recovery might take some time to materialize as banks continue cleaning up portfolios and older loans mature, bankers express growing confidence that loan balances could start rising again in the not-too-distant future. Many commercial bank clients say they are no longer shying away from CRE originations, especially in multi-family and other segments with strong and improving fundamentals.
“It’s good news for the market—and for the entire economy—that banks are increasingly willing to lend in CRE if the deal is profitable and contributes to a broader commercial relationship with the borrower,” says Gregory Schneider.
Commercial Lending Market Insight is a quarterly review of data and analytics from the CLA team at Coalition Greenwich.