Despite some of the declining trends, New Jersey based banks continue to play a pivotal role in moving the local economy forward. On a national level, bank loan growth as a percentage of GDP has averaged 85% over the past 5 years. For New Jersey, that number has averaged closer to 217% of the state GDP. This implies that banks in New Jersey have been playing a disproportionately higher role in providing capital to our state’s businesses and households. Furthermore, New Jersey banks have grown their absolute levels of loans at rates comparable to that of the industry. This provides further credence to the fact our state’s banks are working overtime relative to banks outside the footprint (meaning the loan growth to GDP ratio isn’t purely a function of NJ’s lesser GDP growth). Another item for consideration in 2024 is the reality that 16% of New Jersey’s GDP comes from the real estate and rental leasing sectors. Federal Reserve rate tightening in recent years has adversely impacted real estate activity, which will likely further stress local economic activity in 2024. The silver lining for real estate (especially commercial) is that markets should begin to thaw in 2025 as a backlog of maturities normalizes into more manageable levels. Additionally, it’s widely expected the Federal Reserve will begin to ease monetary policy later in 2024 which could provide a tailwind to real estate activities. Given the State’s economic reliance on real estate, it’s not surprising to see New Jersey based banks hold larger concentrations of real estate in their respective loan portfolios. That said, over the past 30 years, New Jersey banks’ loan losses averaged around 0.13% of average loans, a rate less than 50% of the total banking industry. While popular narrative suggests most commercial real estate is problematic, history suggests that conservative underwriting, strong borrower relationships and valuable collateral are the key to New Jersey banks’ long track record of success. While the economic landscape for New Jersey has some hurdles to overcome in 2024, the local banking sector has been an important source to fuel the state’s economy. As legislative headwinds become more onerous for the banking sector, local economies may suffer if banks’ lending appetite declines. As exampled by several other states (GA, SC, TN, OH, NY, to name a few), legislators and private sector leaders working and planning together can create a more favorable business environment in New Jersey. Accordingly, the banking industry would be in an even better position to continue its support of the New Jersey economy. Such a collaborative approach would certainly help alleviate economic pressures in 2024 and set the state up for a more prosperous recovery in 2025 and beyond. Rick Kraemer is Executive Vice President and Chief Banking Officer at Valley Bank. Rick Kraemer feature
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