• Solutions
    • AFSVision
      • What's Important to You
      • What’s New with AFSVision?
      • Origination
      • Workflow
      • Accounting
      • Servicing
      • Exceptions
      • Reporting
      • Implementation
    • Commercial Lending
    • Commercial Real Estate
    • Small Business
    • Capital Markets
    • LIBOR to SOFR
      • LIBOR Transition Webinars
    • Digital Solution for the Future
    • Delivery Options
      • Getting Started
      • Continuing Service
    • Security
      • Certified Secure
  • Business Intelligence
    • Pricing Services
    • Portfolio Analytics
    • Credit Risk Navigator
    • Insights from AFS Business Intelligence
    • Market Insights
  • Client Success
  • News & Events
    • Blog
      • How to manage risk for a successful implementation
      • Continued Growth Despite Growing Headwinds: What 1Q2022 Showed Us in Commercial Lending
      • The Good News from 2021 – Signs Point to Commercial Lending Growth
      • Make the Connection: Commercial Banking and Real-Time Payments
      • Replacing LIBOR: Understanding Your Choices
      • ESG and Data Quality
      • Keep the SOFR Momentum Going!
      • Lending in the Time of COVID-19
      • Let’s Talk About SOFR
      • Stay on Track for LIBOR Transition
      • Success in Transformation
      • 4 Key Elements for Commercial Lending Transformation
      • 5 Reasons to Transform Your Commercial Lending Business
      • Getting Real about Real-Time in Commercial Lending
    • AFS Global Insights
    • Articles
    • Events
    • Press Releases
    • Videos
    • Webinars
    • Webinar Archives
  • Careers
    • Career Opportunities
    • Life at AFS
    • Benefits
  • About AFS
    • Discover the Advantage of AFS
    • What Makes Us Different
    • Awards
    • Our Clients
    • Our Community
    • Our Culture
    • Our Leadership
      • Jim Greenwood
      • Rick Bare
      • Melissa Hofer
      • Jeff Baldyga
      • Dean Snyder
      • Radford Laney
      • John Dubil
      • Amy McEldowney
      • Bruce Herndon
      • Gary Harrell
      • Robert Kahn
    • Our Mission and Values
    • Our People
    • Celebrating 50 Years
  • Contact Us
    • Communications Preferences
    • Directions
  • Global
  • Sign In
In order to provide complete functionality, this web site needs your explicit consent to store browser cookies. If you don't allow cookies, you may not be able to use certain features of the web site including but not limited to: log in, buy products, see personalized content, switch between site cultures. It is recommended that you allow all cookies.
News & Events / Blog / Continued Growth Despite Growing Headwinds: What 1Q2022 Showed Us in Commercial Lending

Continued Growth Despite Growing Headwinds: What 1Q2022 Showed Us in Commercial Lending

Coming out of 2021, when there were signs that the economy and commercial lending were on the rebound, we continued to see growth in the first quarter of 2022, despite some growing headwinds. But a look at the broader market and economic forces shaping 1Q2022 commercial lending trends show that there are forces, including the Fed’s first rate hike in three years and excess liquidity in the banking system, that may temper the benefit that banks realize and slow any rebound.

What the Leading Economic Indicators are Telling Us
Coming into the first quarter, the economy was heating up, with C&I loan growth accelerating; however, since that time the impact of the Omicron COVID-19 variant on the overall economic rebound has started to show. But what are the four variables central to commercial lending demand—Gross Domestic Product (GDP), Consumer Price Index (CPI), unemployment rates, and the Business Confidence Index (BCI)—showing in terms of potential future growth?

Sources:
U.S. Bureau of Economic Analysis
U.S. Bureau of Labor Statistics
Business Tendency and Consumer Opinions Surveys


Challenges Present Themselves
Real GDP—a leading indicator for C&I loan growth—was negative for the first quarter of 2022 (attributable primarily to restrictions and disruptions caused by the Omicron COVID-19 variant), ending the expansion we have seen for the last year and a half.

But what is becoming a bigger headwind for loan growth is inflation. As the chart below shows, the year-over-year change in the CPI remains well above historical norms, even when excluding food and energy prices. The high inflation numbers prompted the Fed to raise short-term interest rates in mid-March, and then again in early May, the largest rate increase since May 2000. The challenge here, for the Fed and FIs, is the danger that interest rate increases could hinder economic growth and dissuade borrowers from taking out new loans.
Source: AFS Pricing Database

Markets rates, specifically, show their sensitivity to the Fed’s rate hikes. Average interest rates on new/renewed C&I and CRE loans increased in the weeks leading up to the Fed’s rate hike in March. While further Fed tightening is anticipated, excess liquidity in the banking industry, coupled with competition from non-bank lenders, may limit the benefit banks experience in the form of higher loan yields.

Positive Indicators Remain
Even though GDP and CPI may indicate challenges ahead, in terms of commercial loan growth, U.S. employment rates and Business Confidence Index were positive indicators in this area.

While the odds of a medium-term recession have increased, the U.S. unemployment rate point to a labor market that is still quite strong, maintaining pretty much full employment with the unemployment rate trending at 3.6% at the end of the first quarter. And even though it took a hit due to the fallout of Omicron and the Russia/Ukraine conflict, business confidence remained above the long-term average, providing the necessary demand for commercial loan growth, as we saw throughout 1Q2022.
Source: Federal Reserve H.7 Data Release

Looking at loan growth at the end of the quarter, we find that despite some of the recent headwinds to the economy mentioned above, commercial lending managed to post an increase in March. Total C&I and CRE balance growth was stronger than expected, with broad-based increases across geographic regions, and the acceleration of the new deal flow continued, supporting previous bank guidance of strong loan pipelines.

The Future is Hazy
With more interest rate increases, the competition for the best loan customers and loan growth becomes even more a priority for FIs, and excess liquidity still looming, forecasting loan growth over the next year is a difficult exercise. Additionally inflation continues to soar and the prospect for an economic recession looms should the Fed tighten too aggressively; but for now, the labor market is strong, problem loans remain low, and commercial loans are growing.
 
About the Data
Information is pulled from the AFS Pricing Service database, an independently verified robust database considered the industry source for commercial lending trends. The information shared here and more was also discussed in the recent complimentary AFS webinar, “Pricing Fundamentals, a Review of the 1Q2022 Commercial Lending Landscape.” Stay on top of important commercial lending pricing trends with the industry renowned Commercial Loan Pricing Newsletter. Sign up to receive the newsletter, information on webinars, and more insights from AFS!
 
 
 
 
 
 

  • Solutions
    • AFSVision
      • What's Important to You
      • What’s New with AFSVision?
        • AFSVision Role-Based Security
      • Origination
      • Workflow
      • Accounting
      • Servicing
      • Exceptions
      • Reporting
      • Implementation
    • Commercial Lending
    • Commercial Real Estate
    • Small Business
    • Capital Markets
    • LIBOR to SOFR
      • LIBOR Transition Webinars
    • Digital Solution for the Future
    • Delivery Options
      • Getting Started
      • Continuing Service
    • Security
      • Certified Secure
  • Business Intelligence
    • Pricing Services
    • Portfolio Analytics
    • Credit Risk Navigator
    • Insights from AFS Business Intelligence
    • Market Insights
  • Client Success
  • News & Events
    • Blog
      • How to manage risk for a successful implementation
      • Continued Growth Despite Growing Headwinds: What 1Q2022 Showed Us in Commercial Lending
      • The Good News from 2021 – Signs Point to Commercial Lending Growth
      • Make the Connection: Commercial Banking and Real-Time Payments
      • Replacing LIBOR: Understanding Your Choices
      • ESG and Data Quality
      • Keep the SOFR Momentum Going!
      • Lending in the Time of COVID-19
      • Let’s Talk About SOFR
      • Stay on Track for LIBOR Transition
      • Success in Transformation
      • 4 Key Elements for Commercial Lending Transformation
      • 5 Reasons to Transform Your Commercial Lending Business
      • Getting Real about Real-Time in Commercial Lending
    • AFS Global Insights
    • Articles
    • Events
    • Press Releases
    • Videos
    • Webinars
    • Webinar Archives
  • Careers
    • Career Opportunities
    • Life at AFS
    • Benefits
  • About AFS
    • Discover the Advantage of AFS
    • What Makes Us Different
    • Awards
    • Our Clients
    • Our Community
    • Our Culture
    • Our Leadership
      • Jim Greenwood
      • Rick Bare
      • Melissa Hofer
      • Jeff Baldyga
      • Dean Snyder
      • Radford Laney
      • John Dubil
      • Amy McEldowney
      • Bruce Herndon
      • Gary Harrell
      • Robert Kahn
    • Our Mission and Values
    • Our People
    • Celebrating 50 Years
  • Contact Us
    • Communications Preferences
    • Directions

We have Solutions for your Challenges

Request a Demo Contact Us

Solutions

  • Overview
  • AFSVision
  • Commercial Lending
  • Small Business
  • Commercial Real Estate
  • Capital Markets
  • Client Success Stories
  • Business Intelligence
  • News & Events
  • Careers 
  • About AFS
  • My AFS

Contact

  • US: +1 610 524 9300
  • EU: 32 472 135 295
  • replyto@afsvision.com

Updates

You'll get useful industry information, AFS Industry events, AFS company and product information and much more.

Join

2022 Automated Financial Systems, Inc. All Rights Reserved.

AFS and all AFS product trademarks are registered trademarks of Automated Financial Systems, Inc.

  • Privacy Policy
  • Legal Notice
  • Solutions
    • AFSVision
      • What's Important to You
      • What’s New with AFSVision?
        • AFSVision Role-Based Security
      • Origination
      • Workflow
      • Accounting
      • Servicing
      • Exceptions
      • Reporting
      • Implementation
    • Commercial Lending
    • Commercial Real Estate
    • Small Business
    • Capital Markets
    • LIBOR to SOFR
      • LIBOR Transition Webinars
    • Digital Solution for the Future
    • Delivery Options
      • Getting Started
      • Continuing Service
    • Security
      • Certified Secure
  • Business Intelligence
    • Pricing Services
    • Portfolio Analytics
    • Credit Risk Navigator
    • Insights from AFS Business Intelligence
    • Market Insights
  • Client Success
  • News & Events
    • Blog
      • How to manage risk for a successful implementation
      • Continued Growth Despite Growing Headwinds: What 1Q2022 Showed Us in Commercial Lending
      • The Good News from 2021 – Signs Point to Commercial Lending Growth
      • Make the Connection: Commercial Banking and Real-Time Payments
      • Replacing LIBOR: Understanding Your Choices
      • ESG and Data Quality
      • Keep the SOFR Momentum Going!
      • Lending in the Time of COVID-19
      • Let’s Talk About SOFR
      • Stay on Track for LIBOR Transition
      • Success in Transformation
      • 4 Key Elements for Commercial Lending Transformation
      • 5 Reasons to Transform Your Commercial Lending Business
      • Getting Real about Real-Time in Commercial Lending
    • AFS Global Insights
    • Articles
    • Events
    • Press Releases
    • Videos
    • Webinars
    • Webinar Archives
  • Careers
    • Career Opportunities
    • Life at AFS
    • Benefits
  • About AFS
    • Discover the Advantage of AFS
    • What Makes Us Different
    • Awards
    • Our Clients
    • Our Community
    • Our Culture
    • Our Leadership
      • Jim Greenwood
      • Rick Bare
      • Melissa Hofer
      • Jeff Baldyga
      • Dean Snyder
      • Radford Laney
      • John Dubil
      • Amy McEldowney
      • Bruce Herndon
      • Gary Harrell
      • Robert Kahn
    • Our Mission and Values
    • Our People
    • Celebrating 50 Years
  • Contact Us
    • Communications Preferences
    • Directions
  • Global
  • Sign In