Jason:
1) Do you really work for a financial institution?
2) Are you aware of certain economic factors right now - like rising unemployment, reduced spending, etc.
Sure they’re are a number of consumers and businesses who should pay their loans off - that is typically the goal. However, to restrict lending (which includes renewals) will actually dramatically increase non-performing assets which raises big red flags with bank investors and with the regulators. Also when liquidity is tight corporate bond rates will go down not up.
The level of ignorance in that statement is hard to fathom.
Corporate bond rates are at epic high levels precisely because liquidity is tight. There is very little capital willing to take the risk of lending to corporations, compared to the huge pool of it willing to lend to the government, or government insured assets. That is the same as saying the spread between BBB corporates and treasuries is extremely wide.
Anyone who nevertheless lends to corporates is betting that the spread cannot stay so wide forever, and will be rewarded by a large appreciation in the value of his capital if he is right and spreads narrow. Spreads narrowing do not cost him money. They get capitalized into the price of his existing bond commitments. Buy a 10 year, 8% coupon bond at 77 to yield 12%, and if the yield falls to 9, the price will increase 20% or so to 93 and change.
When liquidity gets more abundant and people are willing to run credit risks again, that will happen. Anyone who buys corporates at the present epic spreads will get paid both the higher interest they offer, and that price pop as spreads return to sustainable levels. Minus, to be sure, some cost in defaults and credit losses in the meantime, but those aren't even going to reach the level of the rate differences.
Until rate spreads narrow again, there is no reason for banks to force capital into the hands of lower quality borrowers at authority-set low rates.
The only reason they have positions in the low rate, higher credit quality asset classes at all, right now, is they have smaller capital requirements under Basel II, and therefore they can carry their full asset size with less equity. Since they are undercapitalized, they are forced to do that by stupid regulations, which only recognize credit risk and not price risk. As they get recapitalized, they will increase the portion of the supposedly "riskier" asset classes, which in fact are the only paying ones right now and objectively lower risk.
A treasury paying 2.5% is in every real economic respect a riskier loan than an investment grade corporate paying 10%. But the regulations are too stupid to notice this, and banks are only legally entitled to act on it if they have more capital to hold as "reserve" against the supposedly greater risk of (credit) losses on the second. That is will inevitably give a higher total return, the regs simply do not acknowledge. They are written as though market prices are infallible, and this is far from true.
Undercapitalized banks mean irrational allocation of capital to comply with irrational regulations. That spells opportunity for everyone not restricted by those regs, to buy the higher return items they are limited in holding. The banks themselves know this, and seek to increase their liquidity and capital to be allowed to move to where they know the retutns are. The way to do that is to force a cash flow in their own direction by letting consumer loans and mortgages run off, and using the improved capital position that gives them, to shift into earning corporates instead.
That takes time and the authorities are pushing the other way by bidding up treasury and mortgage security prices, while sticking corporates with losses wherever they can. But they are whistling dixie. If they want a functioning banking system, they have to let rate spreads return to reality, and the reality is US corporations are vastly more creditworthy than your average overleveraged deadbeat homeowner.