Banks' commercial, industrial loans fall

A snapshot of Kansas banking activity by a federal regulator shows the state's banks had the lowest level of commercial and industrial loans on their books in at least two years.

The Federal Deposit Insurance Corp.' s Kansas Profile for the second quarter, released this week, shows that bank commercial and industrial loan portfolio concentrations were 76.8 percent, down from 83.2 percent in the same quarter a year ago and a 10 percent decrease from 2008.

The report also showed that commercial real estate loan concentrations were down by 6 percent from the same quarter a year ago and in 2008.

Residential real estate loans, however, were up nearly 3 percent from a year ago and down by just a little more than 1 percent two years ago.

Bankers Brad Elliott and David Harris said the lower concentrations in commercial and industrial and commercial real estate loans are because of less demand.

"All the banks I know of are aggressively trying to seek new loan customers," said Elliott, CEO of Equity Bank.

But many companies, he said, are holding off on renewing or tapping into operating lines of credit or getting new equipment loans because of the struggling local economy.

And, he and Harris said, just like consumers, companies are focused on paying down their existing debt.

"People are deleveraging," said Harris, CEO of RelianzBank.

Richard Cofer, Kansas City regional manager for the FDIC's division of insurance and research, said the lower concentrations could also be a reflection of some banks charging off problem commercial loans and tightening their underwriting standards.

But, Cofer said, "the bulk of the decline in C and I portfolios is largely reduced demand for credit. A common message that we hear from bankers is that their healthy commercial borrowers' appetite for loans is down as they take a wait-and-see stance with the economy."

Equity's Elliott said he thinks concentrations are up slightly in residential real estate loans because some banks — including his — are holding on to the mortgages they originate instead of selling them off to the secondary market.