“Carl DelPrete, chief executive of suburban New York supermarket chain Uncle Giuseppe’s Inc., couldn’t be happier with the current lending environment. To fund a recent expansion, he got bids from three banks and calls the terms on the $14 million loan “the best we’re ever going to see in our lifetime.”
The episode reflects a renewed willingness by some banks to lend cheaply and on flexible terms.
But with banks not far removed from persistent criticism that they were slow to make business loans that would kick-start an economic recovery, a new concern is emerging: Is the pendulum swinging too far the other way?
The surge in loans to businesses is raising worries that lenders are competing so aggressively that some will pay for their largess down the road.
So-called commercial and industrial loans were up 4.4% in the fourth quarter and 16% for all of 2012, according to data compiled by research firm SNL Financial of Charlottesville, Va.
The push comes at a time when many banks have been flooded with deposits as slow economic growth and low interest rates crimp investment. Domestic deposits since mid-2008 have surged 29% to $9.06 trillion, according to Federal Deposit Insurance Corp. data.
“Banks are loaded with liquidity and starving for growth,” said Paul Miller, an analyst with FBR Capital Markets.
Banks of all sizes are fueling the lending trend. Business loans outstanding at Wells Fargo WFC +0.03% & Co., the country’s fourth-largest bank, jumped 12% to $187 billion in 2012. The State Bank of Southern Utah, a community lender based in Cedar City, Utah with $715 million in assets, saw a 9% jump for the year to $38 million. The bank is a unit of Southern Utah Bancorp.
Yet the profitability of the loans that banks are making is under pressure….”
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