Commercial Loan Pricing Market Update (Nov. 1-15)

Since early March, we’ve posted regular updates on the commercial loan pricing markets, based on what we’ve seen when examining the PrecisionLender dataset. We look at several popular metrics and point out areas in which there have been noteworthy changes. 

Today’s analysis is for the first half of November. It was a period that saw rising pressure on NIM, but also increases in average deal sizes. 

If you’d like to see our previous loan pricing market updates, you can find them here.

We track many more metrics than are spotlighted in these posts. The ones that didn’t “make the cut,” usually don’t get displayed because there’s either a) nothing much new to say about them, or b) the data is too murky and needs a few more weeks of monitoring before it can be shared. 

That said, if you have questions about metrics that have appeared in previous posts, but not this latest one, please reach out us at insights@precisionlender.com.

NOTE: PrecisionLender’s data reflects actual commercial 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 Up in Short-Term; Steady in Long-Term 

After a dip in early October, pricing volume has risen in the past two tracking periods and is at a familiar level – similar to Pre-Covid numbers, as well as June and September. The mix of rate-types remained largely unchanged, with fixed-rate deals continuing to make up about 40% of the total loans priced.

Priced Commercial Loan Volume, Weekly Average

LIBOR and Prime Spreads Move in Opposite Directions

Interestingly, while spreads to LIBOR rose slightly this period (2 basis points), spreads to prime dipped seven basis points. Over the past two reporting periods, Prime spreads have now dropped 11 basis points and are now at their lowest levels since May. Still, when you pull back a bit and take a broader view, LIBOR and Prime spreads have essentially followed the same pattern since August. And both are still in the general range of ~25 bps higher than pre-COVID levels.

Coupon Rates Fall for Prime-Based Deals 

While we typically remark on the coupon levels by each of the three major rate types, it’s also worth noting how they compare to each other. In particular, Prime-based coupons remain significantly higher than LIBOR-based and somewhat higher than fixed rate loans. Given what we’ve seen recently with the decrease in Prime spreads, it raises the possibility that downward pressure, if any, will come first to prime-based loans. We'll continue to monitor these metrics.

Coupon Rate Trend

Funding Costs Continue to Rise 

While coupon rates have either remained steady or fallen a bit for the various rates, funding costs have continued to rise. They’re up slightly since the end of October (5 bps at the 60-month mark) but significantly since the end of July. The 3-Month LIBOR Swap Curve 60-month mark has risen by 20 basis points during that span – and up 14 basis points since the end of September

 

COF Rise Leads to Fixed-Rate NIM Compression

Those funding costs increases (5 bps), when combined with the lower yield for fixed-rate loans (down 7 bps) led to a 12-bps drop in NIM. That’s the lowest fixed-rate NIM we’ve observed since early July. 

That said, NIM still remains well above pre COVID levels, and has been above 2.50% since March.  We chose to display June to help visualize the change in COF since March.  

Fixed Rate NIM Composition YTD

Median Loan Amounts Are on the Rise

The NIM numbers also look better with the additional context of median loan amounts. The median amounts for LIBOR-based and fixed-rate loans has risen steadily since May and are well above pre-COVID levels. The data for Prime-based loan amounts isn’t quite as clear at this point, but overall this would seem to be a positive indication both of banks’ willingness to extend more credit and businesses’ willingness to take on more debt.

Median LIBOR Loan Amounts

Got Questions?  

Our banking consultants and data scientists are combing through PrecisionLender pricing data every day. If there is anything you’d like to know about what they’re seeing, please send along your questions to insights@precisionlender.com.

 

 

 

 

 

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