The amount of money loaned by Kansas banks for new buildings and business operations in the first half of 2011 is lower than at any time in the past five years, but bankers say it's not because they are tightening credit.


The amount of money loaned by Kansas banks for new buildings and business operations in the first half of 2011 is the lower than at any time in the past five years, but bankers say it's not because they are tightening credit.

In a report prepared this week for The Wichita Eagle (http://bit.ly/sSFlLI ), the Federal Reserve Bank of Kansas City said Kansas banks made $9.5 billion in commercial real estate loans in the first half of 2011. That's a drop of nearly $1 billion from the same period a year ago.

At the same time, commercial and industrial loans — which include lines of credit, operating capital and business equipment purchases — totaled $5.2 billion, down from $5.5 billion in the first half of 2010. Similar decreases were reported throughout the Federal Reserve's 10th District, which includes Colorado, western Missouri, Nebraska, northern New Mexico, Oklahoma and Wyoming, the Eagle reported.

Bankers insist they aren't tightening credit. Instead, they blame the drop in lending on regulatory policies, fewer lenders, commercial customers building their cash reserves and a decline in customer demand.

Even before the recession began in 2008, regulatory agencies warned institutions to lower their ratios in commercial real estate loans, leading many banks to do just that. Regulators also increased their scrutiny of banks' commercial real estate portfolios during routine examinations.

Then the financial crisis and recession hit, prompting banks to curb their lending just as demand was decreasing.

And many bankers are requiring borrowers to have more equity in a real estate project, as well as offering shorter terms and higher rates than in recent years when "anybody with a corner started building a building with or without demand," said Dan Unruh, a developer and partner at InSite Real Estate Group.

"I can tell you that the lenders are being much more conscientious in their underwriting," Unruh said. But an investor with a good track record and finances to support a project that might be vacant for a while can get a loan, he said.

"Contrary to what's happening in the market, we are actually working toward breaking ground on a (speculative) project in Wichita," he said, although he wouldn't disclose specifics of the project.

David Harris, chairman and CEO of RelianzBank, said his bank is actively seeking and making commercial real estate loans.

"I see a stronger demand for CRE loans than C&I loans," Harris said. "I think that's driven by some properties out there selling at maybe below market rates."

But for RelianzBank and others, commercial and industrial loan demand has been flat or declined.

"As soon as the economy started to decline, loan demand softened," said Doug Neff, executive vice president of commercial lending at Commerce Bank.

Companies began holding onto their cash and building their reserves and use of lines of credit dropped significantly, Neff said.

"My perspective is there's less confidence, less certainty in the economy," said Lyndon Wells, executive vice president of Intrust Bank. "Customers are using their money instead of borrowing money."