Commercial Loan Pricing Market Update (April 13-17)

April 19, 2020 Anna-Fay Lohn

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 the PrecisionLender data set. 

Each week we’re posting updates based on our observations. We’re looking at several popular  metrics, and pointing out areas in which there have been noteworthy changes. Today’s update is through the end of last week – April 17. If you’d like to see our previous weekly pricing market updates, you can find them here.  

NOTE: PrecisionLender’s data reflects actual opportunities priced (loans, deposits and other fee-based business) by 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.

Volume Bounces Back

After four straight drops week-over-week, volume was up 46% last week. The likely explanation is that PrecisionLender clients resumed pricing deals on the platform after the PPP tranche – which many banks chose to process directly and forego pricing in PrecisionLender – filled up. 

Priced Volume Week by Week

Fixed- and Floating-Rate NIMs Rise

NIMs on both fixed- and floating-rate loans increased last week. Fixed-rate NIM moved up 16 bps, to 2.17%, after having dropped 19 bps over the course of the previous two weeks. Floating-rate NIM increased 13 bps, to 2.75%, increasing for the third straight week. 

Both fixed- and floating-rate loans are at their highest NIM levels since we began our weekly updates in early March. 

Note: We measure NIM with an assumed marginal funding cost, not the bank’s actual average cost of funds. 

 

Fixed-Rate NIM Composition

Floating-Rate NIM Composition

The NIM increase corresponds with a drop in funding costs last week (9 bps for fixed-rate and 13 bps for floating-rate). These recent funding curve snapshots show downward movement, particularly in the 2-10 year section of the curves.

FHLB Composite

3-Month LIBOR Swap

1-Month LIBOR and Prime Spreads Trending Up

While the spread to LIBOR contracted last week, a trend emerged when we stepped back and compared the  average LIBOR spreads from Weeks 9-15 (2.41%) to spreads from Weeks 1-8 (2.30%). 

1-Month LIBOR Spreads

Meanwhile, Prime spreads jumped 13 bps from last week, to 61 bps – the highest levels in 2020. As with 1-month LIBOR, Prime spreads were up in Weeks 9-15 (33 bps) when compared to Weeks 1-8 (26 bps).

Prime Spreads

 

The likely explanation: At these lower levels of the index interest rates, lenders are seeking to protect yield by adding to index spreads where possible. 

ROE Up – Past January Levels

The improved NIMs in fixed- and floating-rate loans translated to improved ROEs last week – 18.55% for fixed-rate and 20.7% for floating rate. Those numbers are now both above early March levels, as well as January (16.6% for fixed, 19.2% for floating). 

ROE Results

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.

 

 

 

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