Consumer Loan Portfolios Rise 13%, Largest Jump in a Decade

Banks expanded their consumer loan portfolios last year at a faster pace than they have in nearly a decade, according to data compiled by the American Banker.

Consumer loans held by commercial banks shot up 13% to $1.057 trillion at the end of 1994, improving the 10.2% growth in 1993, and nearly equaling the 13.1% growth in 1985.

Once again, consumer lending was the hot growth business in banking, outstripping the 9.7% growth in total bank loan portfolios. Consumer loans, defined as mortgage loans, home equity loans, credit card loans, and other loans to consumers, have grown at a faster pace than total bank loans every year for the past decade.

Consumer loans now make up 44.8% of all bank loans, compared with 43.5% last year and 31.1% in 1985.

The reason for the growth, analysts and bankers said, is that consumer banking is now seen as a better business than banks' other traditional lines.

"Consumer banking is really the targeted area of growth for just about any bank you can name," said Carole Berger of Salomon Brothers Inc.

According to Ms. Berger, the "three-legged stool" of banking - commercial and industrial loans, commercial real estate loans, and consumer loans - has been knocked down.

Banks are treading lightly in commercial real estate lending because of crushing losses in the 1980s and early 1990s. Commercial lending continues to grow at a pace near that of consumer lending. But profits on loans to big companies are proving hard to make because of heated competition between banks and nonbanks.

That leaves consumer lending as the main area where banks can make money, but it is especially competitive, particularly in mortgage making. However, consumer lending does deliver solid returns in other products, such as credit cards.

Also, some banks are finding consumer lending to be a lucrative source of cross-selling opportunities for other high-margin services, Ms. Berger said.

In this go-go business, BankAmerica Corp., San Francisco, has retained its position as a market leader. The consumer loan portfolio at the $223 billion-asset institution grew 9.89% last year to $67.9 billion, making it the largest consumer lender among commercial banks.

BankAmerica's growth was driven by a 10.1% increase in one-to-four- family mortgage loans, to $40.5 billion. All other consumer loans, a category that at BankAmerica consists primarily of credit card loans, grew 12.2%, to $20.8 billion.

James G. Jones, a BankAmerica group executive vice president, said the company was aided by the purchase of a Minneapolis-based mortgage company, United Mortgage, and by the expansion of its consumer finance subsidiary, Security Pacific Financial Services.

Mr. Jones attributed the growth in BankAmerica's credit card portfolio to more aggressive marketing, and to a decision to move credit card loans to the bank's books that previously had been securitized and sold off to other investors.

But Mr. Jones said increasing interest rates and growing competition did serve to "slightly compress" margins in consumer lending last year.

Citicorp, the second-biggest bank holding company in consumer lending, had much faster growth in 1994 than BankAmerica did. The $269 billion-asset banking company expanded its consumer loan portfolio 17.1%, to $64.3 billion.

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