Commercial Loan Pricing Market Update (April 6-10)

April 12, 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 dataset. 

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

NOTE: 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.

Steep Drop in Volume – PPP the Cause?

Weekly volume fell 48% from Week 13 numbers, which in turn had dropped 27% from the previous week. We’ve heard from many bankers who say that PPP deals have – not surprisingly – been the focus since the program was launched. Many of those deals – because the terms are preset and cannot be negotiated – were not priced in PrecisionLender.  Outside of PPP and forbearance requests, many clients are reporting that volume  has essentially dried up.

Fixed-Rate Incidence Rises

Fixed-rate incidence rose by 5% last week (from 42% of deals priced up to 47%). That percentage closely mirrors the overall March level. 

Floating-Rate NIM Rises as Yields Improve 

NIM on floating-rate loans rose by 15 bps last week, to 2.62% - moving closer to January’s NIM (2.68%). The key factor was a 12 bps improvement in yield week over week (from 3.89% up to 4.01%). 

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

1-Month LIBOR Spreads Reach 2020 Peak

The spread over 1-Month LIBOR spiked up 15 bps, to reach 2.56%, it’s highest weekly level so far in 2020. Spread over Prime also rose 15 bps, to 0.48% - its highest level in 2020. Again, it should be noted that volume this week was down significantly. We’ll continue to monitor this to see if it’s the beginning of a trend or a short-term anomaly. 

ROEs Bounced Back

After dropping down from early March levels, ROE for both fixed- and floating-rate loans rebounded last week, with floating-rate ROEs rising approximately 80 bps (from 18.3 to 19.1%) and fixed-rate ROEs increasing by approximately 90 bps (from 17.0 to 17.9%). The ROE increase for floating rate coincides with the increase in spreads cited previously.

Deposit Volume Remains Steady … For Now

Following up on last week’s look at commercial deposits, we checked again on these metrics. We wanted to set a baseline for deposit numbers ahead of the impact of PPP and the Main Street lending programs. We’ll check back in after that injection of liquidity to see what sort of impact it has on bank customer balance sheets. For now, volumes for interest bearing deposits, DDAs, and time deposits all remained within the range of previous 2020 weekly measurements. 

Interest Bearing Deposits

 

DDAs

Time Deposits

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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