PayNet conducted a recent study to project bank lending hot spots in 2017. According to the report, loan risk premiums should move up overall to reflect the higher projected default rates of 2.1% in 2017.
 
PayNet’s data shows 2017 lending strategy must be built around finding niche markets that offer growth as the overall trend:
 
C&I Sectors Exhibiting Growth Over the Next Few Quarters 

• Businesses in administrative services are seeking credit; this is one of the few sectors showing decent growth at 8.1% (January 2017 vs. January 2016), however with credit risk rising above average to 2.4%.
• Businesses in the entertainment industry appear to be expanding, with borrowing up 14.3% (January 2017 vs. January 2016), offering below average credit risk at 1.5%.

C&I Sectors with Limited Growth or Increased Risk Over the Next Few Quarters 

• Banks may not find much growth from transportation loans, as this industry is slowing dramatically.
• Growth in the construction industry should be weighed against credit risk, as default rates are forecast to increase from 2.1% in 2016 to 2.4% in 2017. 
• Agriculture, while not appearing to be borrowing more, shows 2017 default rates below average allowing banks to get a bit more aggressive with this sector. 
• Manufacturing credit risk is projected to be slightly below average at 2.0%. 
• Professional services companies’ default rates increased 30 bps to 2.0% in 2016 and are projected to moderate slightly to 1.9% in 2017. 
• Wholesale businesses will continue to shrink in 2017 as long as the commodity sector remains weak. 
• Big retail market loan growth has been declining over the past 2 years; defaults are expected to rise to the 2.1% level. 
• Even though the oil rig count has recently increased, mining businesses are not substantially increasing their borrowings.

“The strategic imperative for banks is to diversify by building a robust C&I business in 2017,” says William Phelan, president of PayNet, Inc.
 
PayNet will be at the ABA Risk Management Conference March 26-28, 2017 at the JW Marriott Indianapolis, booth #123 to showcase this data and discuss emerging innovations for bankers to enable new risk management techniques.