Commercial Lending Sets the Pace for February's IBA

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The banking industry's pace of expansion accelerated in February, according to the most recent American Banker Index of Banking Activity.

The overall index reading for February was 56.3, rising from 53.8 a month earlier and marking the highest monthly reading since the IBA debuted last June. Interestingly, January's reading was the lowest on record.

Increased momentum in commercial lending paced the IBA' monthly improvement, as readings for both loan applications and approvals increased. The IBA is a product of American Banker's monthly surveys of bank executives. The index is published in partnership with VantageScore Solutions.

The latest installment was based on 265 responses.

"The improvements in February over January were modest, but these days any improvement is a positive sign," one banker said.

February's reading for commercial loan applications rose to 61.5, compared to 54.2 a month earlier, suggesting accelerated demand. Approvals for commercial loans also grew at an faster pace; the reading rose to 60.6 from 52.1 in January.

Bankers suggested that the improvement was a function of getting better applicants. "We are seeing more quality applications and subsequently, our approval percentages are higher," another respondent observed.

Seasonality could have also played a contributory role in January's results, along with lingering concern about potential intervention by lawmakers and regulators. Still, plenty of apprehension remained in February as the banking industry navigates its way through 2013.

"Local conditions are stable, but uncertainty reigns supreme," one banker cautioned. "We see several new projects coming to the area, but time will tell. The national scene, particularly the fiscal situation, is producing a lot of uncertainty."

Another positive factor in February's results involved bankers' perception of in-market real estate conditions, which had its highest reading at 64.8, compared to 63 in January.

There were relatively few offsetting categories. Hiring contracted, with a reading of 47.2 in February, compared to 50.2 a month earlier. Consumer loan applications and approvals were essentially flat from January's readings.

The IBA is a diffusion index. Readings above 50 in the composite indicate a monthly expansion of activity and readings below 50 point to contraction. (For contrary indicators, such as the components that track loan delinquencies and loan-rejection rates, a reading above 50 is considered evidence of deterioration in business activity.)

The further from 50 a reading is, the stronger the indicated change.

The composite index is a simple average of readings on a range of indicators based on responses to survey questions on topics that include volume and pricing trends in commercial and consumer lending, loan balances outstanding, and deposit account activity.

Respondents are also asked to weigh in on staffing levels at their institutions, as well as business and real estate conditions in markets where they do business. Every effort is made to make sure that the breakdown of companies included in the executive panel is representative of the industry on a number-of-institutions basis.

The values for individual components of the index are equal to the percentage of responses indicating increased activity plus one-half of those indicating "no change."

Component scores are then averaged to arrive at a composite (when calculating the composite, contrary indicators such as delinquencies are scored inversely — the component figure is subtracted from 100).

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