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Here& #39;s some insight in to banking and how regional banks view commercial real estate borrowers in a low rate environment.
Historically, banks made their money on net interest margin (NIM).
What is NIM? Banks have mismatched assets and liabilities. Basically, the bank borrows money from its depositors in the form of deposits, and lends money to debtors in the form of loans.
What is NIM? Banks have mismatched assets and liabilities. Basically, the bank borrows money from its depositors in the form of deposits, and lends money to debtors in the form of loans.
However, the assets and liabilities are mismatched. Deposits can be withdrawn at any time, and loans are repaid on a standard schedule. To make up for this mismatch, banks pay a very low interest rate to depositors, and charge a higher rate to debtors.
The difference in the interest a bank pays and interest it receives is the NIM. After netting out the expenses of running a bank, the money left over was the bank& #39;s profit. But decreasing interest rates have compressed NIM drastically over the long term.
So how do banks make money nowadays? The answer is fee-based income including loan fees, account fees, wire transfer fees, ATM fees, and all sorts of other miscellaneous charges. But that poses another problem for commercial borrowers.
Normally you pay a small fee at loan issuance, but from then on, the bank barely makes any money off of you. So banks started requiring a deposit relationship for borrowers to boost fee income. That& #39;s why banks are so keen about "relationships".
Now, your bank values you as long as you are doing all sorts of other things aside from borrowing at the bank. So you want to borrow? Start a "relationship" with the bank beginning with deposits. The irony is, if you have serious deposits, you don& #39;t really need to borrow.
