California-based banks expanded lending much faster over the last year than the national average for the industry, reflecting an economic recovery taking hold in the Golden State, according to a study conducted for the California Bankers Assn.
The study, produced by Los Angeles research firm Beacon Economics, said loan volumes overall are up more than 8% at banks headquartered in California since bottoming out in 2010. In the remainder of the United States, lending bottomed out a year later and is now up by just 1%.
Commercial and industrial loans, which are non-real-estate loans to businesses for expansion, equipment purchases and the like, led the way. The Beacon analysis said that since hitting bottom early last year, such lending by California-based commercial banks has risen 15%.
Commercial and industrial loans at California banks totaled nearly $51 billion at the end of last year, according to the Federal Deposit Insurance Corp. -- just shy of the pre-recession peak, the study showed.
“It is encouraging that the credit spigot is opening,” said Mark M. Zandi, chief economist at Moody’s Analytics. Although lending standards have eased a bit, the chief reason for the increase in loan numbers is probably greater demand driven by California’s economic recovery, he said.
Beacon, founded by former UCLA economic forecaster Christopher Thornberg, takes a positive view of the state’s economy despite double-digit unemployment and the troubled housing market.
“The statistics point to an economy that is outshining the rest of the United States,” the Beacon report said, citing a greater increase in taxable sales in California than in the nation as a whole.
However, the damage from California’s battered housing and commercial property markets showed in still-depressed numbers of real estate loans on the balance sheets of California banks. The decline was especially sharp for construction and development loans -- the kind that led to so many of the state’s recent bank failures.
The study looked only at banks based in California, which include just one of the major national institutions, San Francisco’s Wells Fargo & Co. It said FDIC figures showing sharp declines in lending by California banks were skewed because 48 California banks have disappeared since the end of 2008, many swallowed up by larger out-of-state banks.
Big banks based outside the state -- Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc. and US Bancorp -- have increased their total loans by nearly 7% since hitting bottom a year ago, with some of that growth benefiting California, the study said.
Although loan delinquencies in California are still higher than in the rest of the nation, they have come down consistently in most categories over the last year, the study found. And it said California’s banks on average have rebuilt their capital levels so that their cushion against unexpected losses is now greater than the average for the U.S. banking industry.