Arizona Tribune - What Commercial Banking Data Reveals About Business Growth

One way is to examine commercial banking data. Because commercial banking covers a large portion of the economy and is tied directly to financing, it often serves as a window into business activity. Let's investigate a few core metrics to see how they shed light on the bigger economic picture.

Core commercial banking metrics to watch

Banks submit detailed reports of their balance sheets and loan performance to regulators each quarter. The Federal Reserve and FDIC publish this data, which is collected through the Federal Financial Institutions Examination Council (FFIEC).

Rather than list everything, here are some key data points grouped into three buckets: business lending, credit conditions, and bank health.

Business lending

Businesses often borrow or repay loans before making big moves, so lending activity is often used as an indicator of expansion or contraction. Analysts typically look at the total outstanding loan balance of two main types of business loans:

• Commercial & industrial (C&I) loans area broad category that includes most loans not secured by real estate, such as financing for equipment, working capital, or acquisitions.

• Commercial real estate (CRE) loans area type of loan that's secured by commercial property and can be used to purchase, build, or refinance real estate used for business purposes.

Rising balances in these categories can suggest businesses are investing more - whether in operations or physical space. Declining balances may point to tighter credit conditions or weaker property markets.

Credit conditions

The next bucket, credit conditions, focuses on the context in which business lending takes place. The key data points here are:

• Demand for C&I loans, or how much businesses are asking to borrow.

• Lending standards for C&I loans, or how strict banks are when approving loans.

• Delinquency rates on C&I loans/ Nonperforming loans, or what share of loans are overdue (delinquent by about 30 days) or in default (90 days or more past due and judged unlikely to be repaid in full).

The first two data points are measured through the Federal Reserve's Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) - a quarterly survey of up to 80 large domestic banks and two dozen U.S. branches and agencies of foreign banks. Analysts typically see strong demand and easier standards as positive signs of growth.

Delinquency and nonperforming loan data come from required reports that banks send to the FDIC and Federal Reserve. Lower rates are typically a sign of economic stability, while increasing rates may point to financial stress among borrowers.

Bank health

The final bucket centers on the banks, specifically their profitability, financial strength, and liquidity. The key metrics for this category are defined below.

• Total deposits: the amount of money customers keep in a bank. Growing deposits usually mean banks have more funding for loans, while shrinking deposits may limit liquidity.

• Loan-to-deposit ratio (LDR): the bank's total outstanding loans compared to its total deposits. A very low LDR might signal weak loan demand or an overly cautious approach, while a high LDR could suggest the bank is overextended.

• Net interest margin (NIM): the difference between the interest a bank earns on loans and securities versus what it pays on deposits and borrowing. NIM measures core profitability.

• Tier 1 capital ratio: a measure of a bank's ability to absorb unexpected losses and remain solvent. Higher ratios indicate stronger capital buffers.

• Loan loss reserves: the funds a bank sets aside to cover loan defaults. More reserves may mean a bank is preparing for credit stress.

Taken together, these indicators help show whether banks are positioned to keep supporting business growth.

How to interpret the data together

No single data point can tell you everything you need to know about business growth. The real story comes from how the indicators align.

For example, rising loan balances with low defaults typically suggest healthy business growth and strong repayment capacity. But if loan balances are increasing while defaults are also climbing, that may point to businesses borrowing out of necessity in a tightening market.

Similarly, when industry-wide capital ratios that are well above regulatory minimums and deposits are growing, analysts may see it as a sign that banks are positioned to keep lending. Together, these factors support continued access to credit, which in turn bolsters economic growth.

Why commercial banking data matters

Commercial banking data captures the heart of everyday business activity, especially for companies that depend on banks for credit. By tracking core metrics for lending, credit, and bank health, you can spot early signals about the overall direction of the economy.

CONTACT:
Sonakshi Murze
Manager
[email protected]

SOURCE: iQuanti

View the original press release on ACCESS Newswire

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