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The Next Wave for Commercial and Industrial Lending Technology and Service Providers

Friday, September 17, 2010

The Next Wave

As the credit markets begin to gradually loosen, lending technology and service providers should represent some of the first vendor categories to directly benefit.  Big banks in recent months eased standards on small-business lending for the first time since late 2006 and the Commercial and Industrial (“C&I”) lending market’s consistent decline appears to have subsided. Recent weekly fluctuations in the C&I lending market are expected to gradually give way to more stable and consistent growth as the economy improves.

Improved C&I loan originations will bolster the need for technology and service solutions that support the entire loan life cycle. Please see our LOAN LIFE CYCLE chart on the right hand side of this page.

Glimmer of Positive Sentiment in the Credit Markets

The Board of Governors of the Federal Reserve System’s study on lending, “July 2010 Senior Loan Officer Opinion Survey on Bank Lending Practices,” was released this month, reflecting a credit market that has resisted opening up fully, although there are strong trends implying lender optimism. The results of the Federal Reserve’s July Senior Loan Officer Opinion Survey are indicative of a slowly improving lending market. The survey, which covers the three months through the end of July, indicates that banks eased standards on C&I loans, continuing the gradual unwinding of the tight standards put in place in recent years.

The net percentage of C&I loan officers who plan to tighten lending standards for C&I loans continues to decline.

Source: July 2010 Senior Loan Officer Opinion Survey on Bank Lending Practices, Board of Governors of the Federal Reserve System, Aug. 16, 2010

Lending requirements have also been softened due to the considerable amount of cash on hand at many large commercial and industrial companies, which many believe will serve to anchor the current recovery progress and significantly limit the possibility of a “double-dip” recession. Non-financial U.S. corporations have amassed $1.84 trillion in cash and liquid assets as of March 2010, up 26 percent from March of 2009, according to the Fed study.

Banks Shifting Towards Commercial and Industrial Loans

One of the nation’s most important priorities is to jump-start bank lending to U.S. companies. Due to nearly a decade of almost exclusive focus on real estate and consumer lending, most small to mid-sized banks no longer possess the level of expertise, infrastructure, and technology required to handle increased levels of C&I lending. As real estate and consumer loans dominated portfolios, small banks adapted to their clients’ needs, growing these divisions at the expense of C&I. As banks seek to increase C&I lending and diversify away from real estate, they will look to technology and service providers to supplant legacy systems and infrastructure with sophisticated lending products and expertise.

Improved Economy – Fueled by the Credit Markets

An improved credit market with less stringent lending standards will directly impact the C&I lending market. Technology and service providers catering to this market will play a pivotal role within banks and other lending institutions, as they seek to invest in infrastructure and systems that bolster their C&I divisions. The next wave of growth opportunities will come with an improved economy – fueled by the credit markets.