Financial Affairs

US banks increased construction loans in the second quarter, even with high defaults

Despite a high number of defaults due to the coronavirus pandemic, banks in the United States continued to provide non-residential construction loans in the second quarter, according to recent data from S&P Global Market Intelligence.

About $ 280.6 billion in construction loans existed in the second quarter, an increase of 2.9% from the start of the year. Construction loans from banks accounted for a total of 3.46 percent of total loans and leases.

Non-residential construction loans rose 4.2% to $ 300.35 billion in the second quarter, and residential construction loans for single-family homes fell 1.4% to $ 80.25 billion .

The big banks continued to distribute loans in the second quarter. Wells Fargo reported an increase in home construction loans while US Bancorp reported a decrease. The two banks reported the highest amount of construction loans in the second quarter, with Wells Fargo reporting $ 20.09 billion and US Bancorp reporting $ 10.69 billion. To round out the top five, Truist Financial Corp with $ 9.9 billion, JP Morgan Case & Co. with $ 9.67 billion and M&T Bank Corp. with $ 9.66 billion in total construction loans.

Total OZK Bank non-residential construction loans increased 18.5% to $ 5.03 billion and PacWest residential construction loans increased 68.3% to $ 410 million.

George Glreason II, chief executive officer of Bank OZK, said some competitors have reduced their consumption in light of the pandemic.

“You’ve had a long period of building real estate in markets across the country,” Gleason said on a July 24 earnings conference call. “So there is clearly a lower need for most types of products than three or five years ago. So the pie got smaller, and COVID-19 has certainly shrunk that pie even further. “

The industry as a whole has not stopped lending construction loans, with a total of $ 380.61 billion in construction loans granted in the second quarter among the top 20 banks in the United States.

However, defaults for residential and non-residential loans continued to increase with $ 2.78 billion in defaults on non-residential construction loans and $ 850 million in defaults on construction loans. residential. Payment defaults were lower in the second quarter compared to the first quarter, but overall higher than the previous three years. In 2017, past due non-residential construction loans were around $ 2.5 billion and past due residential construction loans were around $ 3 billion in the second quarter.

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