Bank lending to businesses soared in 1994, reflecting strong corporate demand and a revival in commercial real estate finance.

Bankers tied the lending surge, evident in a newly expanded annual report by American Banker on business lending (see tables on pages 21 through 29), to the need for short-term loans at floating rates as interest rates rose during the year. Now that rates are coming back down, some observers warned that more banks will leap into riskier loans to make up for lost volume.

There are already "clear signs they've become more liberal in their lending terms," said Eugene Sherman, director of research at M.A. Shapiro & Co.

The American Banker report, which relies on data provided by Sheshunoff Information Services Inc., shows business loans on the books of the top 100 business lenders increased 8.3% during 1994 to $971.9 billion.

Over half of the business loans on the books of the top 100 were in the commercial and industrial loan category, which grew 14.1% to $498.9 billion. For all banks, including foreign banks operating in the U.S., C&I loans were up 9% to $760.3 billion for the year, after three years of declines.

Also for the first time in several years, commercial real estate lending grew significantly. Total commercial real estate loans on the books of banks totaled $397.3 billion at year end, up 4.1%.

Bankers said the real estate increase, which occurred despite sharp reductions in the real estate portfolios of most of the nation's largest banks, reflected activity by community and regional banks that offer real estate loans to local developers on conservative terms.

They also noted demand for real estate loans on the part of Real Estate Investment Trusts which were active during the year.

Rodney F. Ballek, managing director at Citicorp, which was leading business lender with $90.4 billion of business loans at year end, tied loan demand through the first quarter of this year to the Federal Reserve's interest rate hikes, starting in February, 1994. At that point, borrowers that had relied on bond issuance for funds turned to banks, which offer shorter term, floating-rate financing, he said.

Mr. Ballek said as rates begin to fall this year, the pendulum appears to be swinging back in favor of bond issuance. For Citicorp, that would mean an increase in its bond issuance business in coming quarters, and possibly greater emphasis on other types of loans, such as consumer loans or emerging market loans.

The American Banker report also showed:

*Marine Midland Bank was the fastest-growing commercial business lender, increasing its portfolio 79.20% to $4.5 billion;

*1994 was first year since 1990 that commercial loans grew for the top 10 banks, which were well capitalized and therefore less inclined to securitize loans; and

*Among the 20 banks with the greatest exposure to problem real estate loan, eight were foreign owned.

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