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The Tea Leaves Have Spoken - Making the case for more robust commercial loan growth in 2018

Terry Renoux
Feb 7, 2018


While commercial and industrial loan volume has increased annually during the past five years, the rate of increase has continued to decline. That trend is likely to reverse in 2018. Five specific factors are in play that will cause a more robust increase during the year.


Data Source: FRED, Economic Research – St. Louis Federal Reserve – Dec 2017  

1. Business optimism 

The NFIB and other sources confirm that business optimism is higher than any other point in recent decades. Perhaps even more telling than that is the fact that, as measured by the NFIB, small business outlook for expansion is also very strong coming into 2018. This is even before passage of the Tax Cut and Jobs Act.


***The average monthly Index for 2017 was 104.8.

Data Source:  National Federation of Independent Businesses (NFIB) – Dec 2017:  


 “2017 was the most remarkable year in the 45-year history of the NFIB Optimism Index,” said NFIB President and CEO Juanita Duggan. “With a massive tax cut this year, accompanied by significant regulatory relief, we expect very strong growth, millions more jobs, and higher pay for Americans.”

2. Continued easing of credit

As reported by the Federal Reserve Bank through the Loan Officer Credit Survey, the trend toward easement of credit standards has continued through 2017 into 2018.


Source: FRB Senior Loan Officer Credit Survey – October 2017

3. Low (but rising) interest rates

While most experts anticipate two to three interest rate bumps in 2018, low rates still prevail. This is likely to feed borrower sentiment that now is the best time to seek credit, as opposed to waiting until next year, when rates will be higher.

4. Continued diversification away from CRE

While community-based financial institutions have grown CRE portfolios in recent years, their real estate plates are full. They, along with their regulators, are now seeking more diversity. This is likely to feed the trend further and encourage more C&I interest at these institutions.

5.Tax law changes

The overall reduction of taxes through 2018, and the added deductions for equipment costs, are likely to enhance the desire to seek capital improvements through 2018. There is a general sense that pent up demand for equipment, vehicles, and other long-term assets exists within the small business sector. Feeling a bit richer after the tax law changes is likely to lead to an increased rate of expansion.

The market for commercial lending in 2018 is driven by more than just a general measure of business optimism. It is being bolstered by all the factors mentioned above. As a result, for the first time in more than 10 years, we are likely to see significant growth in this segment of lending. Time will tell, but the tea leaves are pointing in all the right directions.

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