2011 Forecast: Hoping for a return of lending

Filed under: Focus,Print | Tags:

Although lending is not likely to increase dramatically, there is some hope that 2011 will mean better things in the banking world.

The healthiest local banks — 5 Star Bank, The Bank at Broadmoor, Central Bank and Trust, and FirstBank — are staying the course, maintaining capital levels and working through whatever bad loans they have on their books.

Three banks that have been under regulatory scrutiny showed some improvement, year-over-year, in the third quarter. Integrity Bank and Trust has high capital levels and its nonperforming loans decreased slightly, while Park State Bank and Trust, which has strong capital levels, also saw its nonperforming loans decrease slightly.

And Peoples National Bank, which also has strong capital levels, saw its nonperforming loans decrease more than 3 percent.

Three other banks, likewise under close watch by regulators, didn’t fare so well.

Rocky Mountain Bank and Trust, which has low capital levels, saw its nonperforming loans increase 6 percent, year-over-year. And Pikes Peak National Bank and Academy Bank — which both have high capital levels — saw their nonperforming loans increase 7 percent and 8 percent, respectively.

Even healthy banks are still concerned about loans going sour in the coming year. Most loans made prior to 2007 aren’t a big concern, but loans made during 2008 and 2009 with interest rates that reset after one or two years could still go into default when the payments increase.

There are, however, some signs of life on the lending front.

“We’re beginning to see activity in commercial leasing and construction sectors, which leads me to be cautiously optimistic,” said Mike League, CEO of 5 Star Bank.

Bankers say they want to lend, but they’re constrained by regulations and, they claim, lack of demand from borrowers.

“Well-capitalized banks want to lend, but it’s hard to find viable opportunities,” said Ted Mossman, senior vice president of Vectra Bank.

At Vectra, loan demand has picked up in the fourth quarter, and Moss said he expects that business and consumer lending will be pretty strong in the first quarter.

“There are a lot of good signs out there right now,” said Ed Sauer, CEO of The Bank at Broadmoor and board chairman of the Colorado Banking Association.

Until the economy picks up speed, though, a lack of loan demand will remain one of the biggest challenges in the banking industry.

Another challenge for the banking industry is the deluge of new regulations.

The 2,319-page Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law on July 21, will negatively impact banks that had nothing to do with the crisis, he said.

“They’re regulating us on the stuff we’re already regulated on. So that act won’t be what consumers really wanted it to be.”

That’s just one point of view, of course.