A study by the Aite Group published in the latest issue of Credit Union Times magazine notes the risks that lenders face in the commercial and industrial loan sector. The report, titled The Booming C&I Market: Bankers Beware, classifies risks into three groups: impacts on bank performance, lending market conditions and macroeconomic factors. The current economic recovery, coupled with the lowering of interest rates by the Federal Reserve System during the recession, has led to an increase in the number of loans taken out, including some by borrowers who may not have been able to apply with the older, higher rates.
Some of the most relevant market forces that the report highlights are as follows:
- Macroeconomic factors: The improving economy has many banks looking for investment opportunities for their newly abundant resources. Aite calls the current interest rates "unsustainably low," and expects many corporate borrowers to look to refinance their outstanding public debt, further driving up the demand for commercial loans.
- Lending market conditions: There is at the moment an excess supply of credit which, along with the aforementioned growing demand for business loans, is leading banks to grant loans to borrowers with lower credit scores at terms that are less favorable to the lending institutions.
- Impacts on bank performance: These factors will result, according to Aite, in a greater number of incidents of credit fraud, with adverse consequences for lenders, as regulatory findings will tend to be more negative.
A financial loan can be a risky undertaking, but lenders can take measures to avoid the pitfalls that Aite's report warns against. Amortization software is a very useful tool for optimally generating payment schedules with the help of an amortization calculator, which can take into account all the variables that go into determining the risks and ideal terms of a loan agreement.