Nonbank lenders have become more aggressive competitors to U.S. commercial banks as they are attracted to the senior status of loans in bankruptcy and restructuring proceedings, according to the Federal Reserve's January 2005 senior loan officer opinion survey prepared by William Bassett and Fabio Natalucci.
The confidential quarterly survey of approximately 50 domestic banks and 20 international banks added the question of why nonbanks are coming into the market. These non-bank lenders are primarily investment banks, but also include insurance companies, pension funds and hedge funds.
One banker at a Canadian institution noted, however, "The primary reason of inflow of new investors is really because of the floating-nature of low interest rates." He added that "Over 50% of bond business was floating-rate bonds and that's basically saying the high-yield business is trying to be like a loan."
Specifically, some loan market participants noted the increase of Japanese players. "I think the takeaway is that there is tremendous appetite from Japanese banks and foreign banks in general," one portfolio manager said. "There's a tremendous appetite to make loans, have exposure to use leveraged spending through N.Y. branches and by investing in CLOs and other funds managed by third-party managers." One banker said, "We've seen the return of the Japanese, absolutely. Not in the single B category, but definitely in double B [and] cross over into investment grades."
The survey also reported that almost 50% of domestic banks reported an increase in potential business borrowers' inquiries. However, domestic and foreign banks continue to ease lending standards and terms for C&I loans and commercial real estate loans, as they had throughout 2004.