Given the recent economic uncertainty, we’ve been getting quite a few questions from our clients, asking us what we’re seeing in commercial loan pricing activity when we examine our PrecisionLender data set.
PrecisionLender’s data reflects actual commercial relationships (loans, deposits and other fee-based business) from more than 150 banks in the United States, ranging in size from small community banks to top 10 U.S. institutions. In addition to their variance in size, these banks are also geographically diverse, with borrowers in all 50 states.
In this post, we’re going to answer some of the most common questions we’ve received so far, looking at pricing data from the start of 2020 through the end of last week (March 13). (This does NOT, therefore account for the federal funds rate earlier this week.)
We hope to turn this into a regular feature, giving you timely updates on the commercial lending market.
Q: My bank’s priced volume has increased recently. Are you seeing that across the market?
A: PrecisionLender’s pricing data confirms this assessment. Volume in the past two weeks has spiked considerably, rising 59% week over week from Week 8 (Feb. 24-28) to Week 9 (March 2-6) and then 15% in Week 10.
Q: Are interest rate type preferences shifting?
We’re seeing a moderate shift toward a fixed-rate preference and away from floating rates. The trend on fixed rate loan interest rates and yields have been lower than the same floating rate loan measures during 2020. Thus, borrowers have been able to reduce their borrowing costs by exploring their fixed rate loan options. In the past two weeks, fixed rates have been used on 47% of the loans priced, up from 42% in January. Meanwhile, floating rate incidence has dropped from 43% in January down to 32% thus far in March. Swap rate pricing has also become more prevalent in March, rising from 7% up to 11%.
Q: We’ve been offering longer terms on our fixed-rate deals. Is that what you’re seeing in the market?
Yes. In January, the average maturity for fixed rate loans was 73 months. In the first two weeks of March, it’s been 80 months. In addition, the amortization period has extended from 232 months to 250 months. This is perhaps an indication of borrowers taking advantage of the very immediate interest rate environment.
As for floating rate loans, the data does not show an extension: The average maturity was 39 months in January and has been 40 months so far in March.
Q: What are you seeing with NIM?
Margins have risen in recent weeks for both fixed- and floating-rate deals. In both cases, the drop in funding costs has helped to offset lower yields. Fixed-rate yields fell 55 bps between the two time periods, while funding costs dropped 64 bps. Meanwhile, floating rate yields dropped 32 bps, but funding costs fell 38 bps. Note: We measure NIM with an assumed marginal funding cost, not the bank’s actual average cost of funds.
Got Questions?
Our banking consultants and data scientists are combing through PrecisionLender pricing data every day. If there’s anything you’d like to know about what they’re seeing, please send along your questions to insights@precisionlender.com.
