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Loan demand seen as strong locally.

Byline: Ilene Aleshire The Register-Guard

A Eugene banker said he doesn't expect the Federal Reserve Board's rate actions to dampen loan demand in Oregon, although banks began raising their prime rates almost immediately following the Fed's announcement. Prime rates are the rates the banks charge their best clients.

"Nineteen of the big banks have already increased their prime to 5.75 percent, effective today," Hank Hoell, chief operating officer of LibertyBank, said Tuesday, "And we will likely follow tomorrow."

Despite the increase in interest rates for short-term borrowing, Hoell said, "I don't think this is going to have a very negative effect on loan demand."

First, he said, interest rates are still relatively low. Also, he said, "The Oregon economy is clearly stronger today than it was 12-18 months ago."

Although the refinancing boom has tapered off, demand for purchase and construction loans is still strong, Hoell said. "We don't anticipate there'll be much of a slowing for that type of lending in the markets we're in," he said.

LibertyBank is the largest privately held bank with headquarters in Oregon, with offices in Eugene, Springfield, Portland, Bend, Grants Pass and Medford.

The Fed has raised its key interest rate seven times in less than 12 months, prompting banks to raise their prime rates. Despite this, Hoell said, "We are having, hands down, the strongest loan production year in the bank's history."

Short-term interest rates will go up as a result of the Fed's action, which will affect business's and consumers' bottom lines, said Dana Reddington, community bank president for Wells Fargo's Oregon Cascades division. "We've just gotten so used to the prime being so low, now that it's moving up it's a little unsettling, a little unnerving," Remington said.

Car loans, short-term business loans and adjustable-rate mortgages all will be affected initially by the continued increases in the Fed's key rate.

Credit card rates also traditionally rise with the prime, but Hoell said that's no longer necessarily true, as that market has become very competitive.

On the flip side, higher interest rates could mean higher deposit rates, Reddington said. Hoell said rates on certificates of deposit have been moving up fairly consistently since the beginning of the year.

Longer-term interest rates, such as 30-year-fixed mortgages, are based on other indices, and don't necessarily rise with short-term rates. Mortgage rates actually have decreased slightly in the past nine months, Hoell said. But, he added, "It seems likely that long-term mortgage rates will start to rise some time in the future."
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Title Annotation:Business; The Fed's rate increases are unlikely to dampen demand, a Eugene banker predicts
Publication:The Register-Guard (Eugene, OR)
Date:Mar 23, 2005
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