Commercial and industrial loans at federally insured banks rose 0.5% last year, and at a faster clip at the biggest banks.
Business loans held by the top 100 lenders rose 2.5% last year, to $366.9 billion, while the 300 largest were up 1.9%, to $437.9 billion.
The data culled from Federal Deposit Insurance Corp. call reports by Sheshunoff Information Services Inc., an affiliate of American Banker, showed the beginnings of an uptick that accelerated late last year and into 1994.
For all FDIC-insured commercial banks, the increase was the first since 1989, when business loans rose 3.1%. Since then, they declined by 0.5%, 9.2%, and 4%, before rising 0.5% in 1993.
The total of business loans at FDIC-insured banks stood at $538.9 billion at yearend 1993, compared to $536.4 billion a year earlier.
Big banks tend to be more aggressive than smaller banks in seeking new lending opportunities, so it's not surprising that their business loan portfolios grew faster than the norm, said Jeffrey Thredgold, chief business economist at Cleveland-based Keycorp.
`A Real Head of Steam'
Business lending started to pick up late last year as the overall economy gathered momentum.
"We came out of the fourth quarter with a real head of steam as far as the economy was concerned," Mr. Thredgold said.
In the first quarter of 1994, business loans held by all FDIC-insured banks rose nearly 8% on an annualized basis.
Keycorp is seeing pretty solid loan demand in all six regions of the country in which it operates, especially in the Rocky Mountain states, Mr. Thredgold said. He added, though, that demand among the more rate sensitive borrowers has slacked off a bit.
Beginning in February, the Federal Reserve started raising short-term interest rates in an attempt to deter any hint of inflation and cool the economy, which grew at a torrid 7% annual rate in the fourth quarter.
Further Tightening Likely
The Fed has already pushed the federal funds rate this year to 4.25% from 3%, and a further Fed tightening could come soon.
As a result, Mr. Thredgold expects economic growth to settle down, at around 2.8% to 3%, in the second half of this year. He said business loans should grow by 5% to 7% in 1994.
Alfred Smith, principal economist at NationsBank Corp. in Charlotte, N.C., said he expects 6% to 8% growth in commercial and industrial loans this year. And in 1995, he looks for a double-digit increase, despite a slowdown in corporate profits and economic growth.
Corporations will be less able to finance their needs with internal cash flow, so they will need to rely more on external sources of funds, including bank loans, Mr. Smith said.
Irwin Kellner, chief economist at Chemical Banking Corp. in New York, said the banking industry is capturing some of the business it lost to other funding sources, including internally generated corporate funds.
He said holdings of C&I loans will "easily" rise by 5% this year, based on current trends.
Steeper Rise than Usual
He noted that C&I loans tend to follow a seasonal pattern - rising in the first five months of the year, falling off at midyear, then rising again in the final months.
While the pattern is repeating itself so far this year, the rise through May was much steeper than usual, Mr. Kellner said.
The rankings of the top business lenders contained few surprises. Heading the list was Citibank, followed by Bank of America, Chemical Bank, Chase Manhattan Bank, and First National Bank of Boston.
Bank of Boston, sixth in 1992, was the only newcomer in the top five, which otherwise remained unchanged.
As was the case with all FDIC-insured banks, asset quality improved markedly among the top 100 business lenders last year.
Noncurrent business loans as a percentage of total C&I loans fell to 1.92% last year from 3.51% in 1992. Net chargeoffs, as a percent of total loans, fell to 0.69% from 1.3%.