December 21, 2012

State of Alabama
Press Release: Alabama Department of Commerce

Alabama Banks Are Lending Less Relative To Their Sizes, Report Shows

December 20, 2012

Among the many statistics tracked by the report is one that measures lending volume relative to bank size; the technical term is "net loans to assets." In 2010, the ratio of net loans to total assets for the median bank in Alabama was 59.36 percent; since then, the ratio for the median bank has been slowly falling, and now stands at 55.43 percent.

Several factors are contributing to the trend, says Harlan Parrish, CEO at Aliant Bank. 

For one, stricter capital requirements are tying bank's hands. Regulators are requiring banks to keep more cash in the vault relative to outstanding loans, Parrish says, which prevents banks from creating too many new loans. That theory is supported by the numbers: the median tier 1 leverage rate among Alabama banks, which measures a bank's equity-to-loan ratio, is up to 10.64 percent in the third quarter, from 9.73 percent in 2010.

At the same time, banks are having a tough time finding business to lend to because many entrepreneurs are still frozen by uncertainty, Parrish says. The hope had been that the completion of the presidential election would set off some growth. Unfortunately, because the "fiscal cliff" remains unaddressed, many business owners are still hesitant to commit to big investments.

"Businesses are sitting on $1.7 trillion in cash," Parrish says. "They're just not spending it."

Aliant itself is growing; its parent company reported an 81 percent increase in third quarter net income at the end of last month. But Parrish says his bank is having more success in winning over existing accounts, as opposed to creating new ones.

Overall, total Alabama bank assets have grown just 1.2 percent since 2010, and now stand at $227.9 billion, the FDIC says.

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