US Banks Increased Construction Lending in Q2 Even With Delinquencies High
"The pie has gotten smaller, and COVID-19 certainly has shrunk that pie further."
Despite a high number of delinquencies due to the coronavirus pandemic, banks in the United States continued to give out nonresidential 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, which was a 2.9 percent increase from the start of the year. Construction loans from banks were a 3.46 percent total of the total loans and leases.
Loans for nonresidential construction lending rose 4.2 percent to $300.35 billion in the second quarter, and residential construction loans for one- to four- family residences decreased 1.4 percent to $80.25 billion.
The major banks continued to distribute loans in the second quarter. Wells Fargo reported an increase in residential construction loans whereas U.S. 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 U.S. Bancorp reporting $10.69 billion. Rounding out the top five are 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.
Bank OZK’s total nonresidential construction loans increased 18.5 percent to $5.03 billion and PacWest’s residential construction loans increased 68.3 percent to $410 million.
George Glreason II, chairman and CEO of Bank OZK, said that some competitors have scaled back in light of the pandemic.
“You’ve had a long run of real estate construction in markets all across the country,” Gleason said at a July 24 earnings conference call. “So there’s clearly a need for less of most product types than there was three years ago or five years ago. So the pie has gotten smaller, and COVID-19 certainly has shrunk that pie further.”
The industry as a whole hasn’t stopped in lending construction loans, with a total of $380.61 billion in construction loans given in the second quarter among the top 20 banks in the United States.
However, delinquencies for residential and nonresidential loans continued to increase with $2.78 billion of delinquencies for nonresidential construction loans and $850 million of delinquencies for residential construction loans. Delinquencies were lower in the second quarter than the first quarter, but overall higher than the previous three years. In 2017, delinquent nonresidential construction loans were about $2.5 billion and delinquent residential construction loans were about $3 billion in the second quarter.