LI's bank lending rate outpaces state's, nation's

Long Island banks are still lending to businesses, unlike banks in the rest of the country - but that may not last, some bankers say.

Statistics released this week by the Federal Deposit Insurance Corp. show that in the first quarter of the year, Long Island-based banks continued to outlend banks in the rest of the state and the nation. Overall net loans were up by more than 15 percent over the year-ago period, while declining by 4 percent nationally and 10.6 percent statewide.

"Even though our economy in this area is worse than it has been in the past, it's better than in most other parts of the country," said Brad Rock Sr., chairman, president and chief executive of Bank of Smithtown.

Long Island banks also made more business loans than their national and state counterparts. Commercial real estate loans as well as commercial and industrial loans were up in the first quarter. Construction and land development loans declined locally, but not as sharply as elsewhere.

And locally based banks benefit from problems that some larger banks have had. Stuart Lubow, chairman, president and chief executive of Community National Bank of Great Neck, said he's reaped business customers from people turned off by poor service and restrictive lending policies at large banks.

But some local bankers said federal regulators have become much more stringent in the past year, requiring higher capital levels and bigger reserves for possible bad loans. Those steps will make it harder for banks to lend, and could lead to credit being restricted in the future, they said.

"That's just math," said Douglas Shaw, a senior vice president at Riverhead-based Suffolk County National Bank. If banks are required to hang on to more of their money and set aside more of it to cover bad loans, there's less of it to lend, he said.

Heavy commercial real estate lending, in particular, attracts regulators' attention, according to Doug Manditch, chairman and chief executive of Empire National Bank in Islandia. "We are somewhat curtailed in that area," he said.

Empire is not alone. Regulators have told at least two Long Island banks - Smithtown and First Central Savings Bank, in Glen Cove - to limit commercial real estate lending and build capital, and Suffolk was ordered to set aside a larger reserve for loan losses. "That's a well-run bank," Rock said, noting his surprise at the action.

Meanwhile, larger credit unions are moving into the business loan market. Credit union regulators have different concerns than bank regulators do, said Kirk Kordeleski, president and chief executive of Bethpage Federal Credit Union. That allows credit unions to be more aggressive about business lending, but Kordeleski said healthy regional banks are competing strongly to make those loans.