Banks hope Ex-Im revival is shot in the arm commercial lending needs

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Banks, seeking any possible spark to commercial loan growth, got one a month ago when Congress settled a yearslong battle over the Export-Import Bank.

The once obscure agency was thrown into the political spotlight in 2015 when conservatives questioned whether to continue the government’s role in making or guaranteeing loans for manufacturers of U.S. goods and their international buyers.

The bank was shut down briefly, and even a patchwork of temporary bills to reopen it had given borrowers pause. Congress voted in December to reauthorize the Ex-Im bank’s charter for seven years and earlier in the year agreed to fill three seats on the board of directors. A quorum of the board was needed to approve loans above $10 million.

Executives at some of the largest lenders that receive Ex-Im backing say the end of the saga has already given business clients the certainty they needed to embrace these loans again.

“Now that we have the seven-year reauthorization, that removes doubt,” said Tom Parides, senior vice president of international trade finance for PNC Financial Services Group in Pittsburgh. “You will have borrowers more willing to participate in the program.”

The $410.3 billion-asset PNC was one of the most active participants in the Ex-Im programs during the 2019 fiscal year, focusing on offering manufacturers loans of up to seven years and working capital lines of credit that the agency guarantees. While Ex-Im loans are not often the sole source of financing for such deals, they are typically a critical part of a broader package that lenders offer business borrowers or their buyers abroad. For instance, the 90% guarantee of the credit risk on Ex-Im loans allows companies to borrow more at lower rates.

During the 2019 fiscal year, which ended on Sept. 30, Ex-Im Bank completed roughly $8.2 billion in loan guarantees, insurance, and the agency’s own direct loans, well short of the $20.4 billion in authorizations during the 2014 fiscal year, the last full year the agency had a complete board, according to the agency’s past reports.

Parides had a meeting with Ex-Im’s senior staff in the summer of 2015, just as the drama over whether to renew the agency’s charter and fill its board was unfolding. He was worried that without a long-term plan, an “artificial liquidity crisis” could emerge as manufacturers went to renew their working capital lines of credit only to find no agency there to back them.

“It planted doubt,” Parides said. “And you can’t have doubt when you’re risk-managing credit.”

A spokesperson for the Ex-Im Bank said in an email that the agency’s ability to provide financing was “severely limited” from 2015 to May of 2019 when the new board was installed to approve high-dollar loans.

“Even then, since the agency’s reauthorization by Congress was in question, many companies elected to wait until long-term reauthorization was certain,” the spokesperson said. “Now that it is, and based on conversations with many companies, we expect the deal pipeline to build to the robust levels we saw before 2015.”

The agency estimated in its annual report released in November that there were $40 billion worth of export deals in the pipeline that require approval by the new board.

Frank Abraham, executive vice president at Pacific Mercantile Bank in Costa Mesa, Calif., said a few of its transactions were “caught in the process” as Congress debated whether to reauthorize the Ex-Im bank in December. The $1.4 billion-asset Pacific Mercantile is among the more active participants in Ex-Im’s programs despite being a community bank. As a business lender, it relies on financing deals for small and midsize companies in Southern California, often ones that depend on Asian markets for buyers.

Abraham said as proposals to reauthorize Ex-Im’s charter ground through Congress at the end of the year, some businesses hesitated to take out new loans.

“Now that we have this long of a runway it definitely creates more certainty,” Abraham said.

Lenders who leaned on U.S. exporters for their commercial and industrial business had already experienced a slowdown in demand because of other problems, like the U.S. trade war with China. Regional bank executives have grown a little more upbeat about their ability to increase C&I loans this year as those trade tensions appear to have eased.

Michael Salerno, lead director of global banking at First National Bank of Omaha in Nebraska, said the guarantees Ex-Im provides give smaller or regional lenders the ability to compete with larger banks that have an international presence. The $23 billion-asset bank said it would have done a lot more loans that supply working capital to manufacturers had the Ex-Im issue been settled earlier. However, it has already done three deals in the last month.

“We’re starting to have those conversations, and with Ex-Im reauthorized it really helps protect those relationships,” Salerno said.

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Commercial lending Policymaking Trade agreements Regional banks Community banking GSIBs Export-Import Bank PNC Financial Services Group Wells Fargo