Bank of the West, the third-largest commercial bank based in California, plans to shift more of its loan book toward borrowers with weaker credit histories.
Prime loans make up 75% of the San Francisco bank's consumer finance portfolio, but it may reduce that figure to as low as 60%, according to Paul Wible, the national finance group head at the bank. The change will begin this year, but he declined to say how quickly it would occur.
"We are bullish on consumers," Wible said in a phone interview, adding that the $76 billion-asset bank intends to broaden its geographic footprint at the same time.
Bank of the West, a subsidiary of France's largest bank BNP Paribas, is an active auto lender and one of few banks willing to make nonqualified residential mortgages.
U.S. banks are slowly loosening consumer underwriting standards, which remain tight and beneath historic norms, the latest Federal Reserve data show. Only 10.5% of U.S. banks polled last fall said underwriting criteria eased somewhat in the past quarter, with the majority, 89.5%, saying conditions have remained basically unchanged, according to the Fed's senior loan officer survey released in November.
Cutting prime credits to 60% would be a "prudent way" to expand the bank's consumer program, which is 20% of the bank's loans outstanding, Wible said. The move is not a reaction to competitive pressures, and is only intended to capture more downstream opportunity, he said.
"It will happen progressively over time, and is dependent on numerous factors including the general state of the economy, the marketplace, our overall risk appetite and other factors," a bank spokeswoman said in a follow-up conversation.
Bank of the West has a strong auto lending program, and it is poised to grow more as consumers spend more and falling oil prices reduce the price of gas. The bank has increased its marketing for marine and recreational vehicle loans, he said.
In October, Bank of the West issued its first-ever securitization backed by prime auto collateral. Rating agencies noted at the time loan terms that extended to 84 months, the longest of any auto securitization sold since before the financial crisis. Average original loan terms for auto deals are typically closer to 70 months, and regulators have expressed concern about the subprime auto market, where credits are weaker. The bank has for many years lent without issue to well-qualified borrowers on longer durations, Wible said.
The bank may issue more auto deals this year, and may securitize marine and RV loans in order to open up its balance sheet to fast-growing commercial clients looking to tap credit lines, he said. The bank's RV and marine portfolio is larger than its auto book, according to Wible.
Wible declined to elaborate on how many non-QM mortgages the bank has produced since a year ago when new mortgage guidelines took effect.