Big U.S. banks see loan growth slowing as outlook for demand, economy darkens

NEW YORK, July 18 (Reuters) – U.S. bankers said they were optimistic about credit growth as demand for consumer and business loans bounced back in the second quarter from a pandemic slump, but warned that demand could weaken later this year. if the economic downturn begins to erode consumer confidence.

Analysts and investors have been closely watching the growth of loans, which drives bank income, after the government’s strong stimulus during the COVID-19 pandemic reduced the interest of companies and consumers to borrow from banks.

As the economy began to recover from the pandemic, credit demand began to rise in the first quarter led by consumer spending and corporate expansion. This continued into the second quarter, despite the US Federal Reserve’s strong interest rate hikes fueling fears of a recession.

JPMorgan Chase & Co and Wells Fargo & Co , two of the largest US lenders, said that their loan books grew in the second quarter by 7% and 8.4%, respectively, compared to last year, with few signs of loan deterioration.

On a second-quarter earnings call Thursday, executives at JPMorgan — the nation’s largest lender — said they expect loans to grow in the mid-single digits this year.

This expansion and the rise of the Fed was good news for banks, widening the interest rate, the difference between the interest earned on loans and the return on deposits.

Citigroup, for example, said total mortgage loans rose for five consecutive quarters to reach 5.81% in the second quarter.

“2Q22 results to date reinforce our positive outlook,” wrote analysts at Wells Fargo, citing strong credit, loan growth and a 10% quarter-over-quarter rise in interest rates. They said that commercial loans are showing the best growth in 14 years.

Wells Fargo, JPMorgan and Citigroup ( CN ) all said that corporate clients borrowed more in the second quarter, often to meet the additional costs caused by rising inflation. JPMorgan, for example, saw strong growth in corporate and industrial loans, which grew 6% on increased use of the surrounding area and new accounts opened, while commercial real estate loans grew 3%.

Citigroup said that loans in the Institutional Clients Group grew by 3%, while officials believe that some of this was driven by the increase in the market that caused conflicts in Ukraine.

“We are seeing an increase in credit as our clients are not looking to access funds through the credit markets as a result of the recent changes,” Citi CEO Jane Fraser told analysts.

Kenneth Leon, director of research, companies and institutions at CFRA Research, said he expects the growth of commercial loans to ease in the second half, while consumer loans may decline due to the risk of a recession, even if it is less.

While lower mortgage lending due to inflation was a drag on consumer lenders, credit card debt rose, with JPMorgan and Wells Fargo both reporting jumps of 17%.

Average loans in Citi’s banking and wealth management division, which includes credit cards, rose about 4% from a year ago.

Bankers said credit remained high, but warned that rising prices could reduce consumer spending.

“I don’t think what we’ve seen in the second quarter will continue to happen quickly,” Wells Fargo Chief Financial Officer Mike Santomassimo told analysts.

Morgan Stanley said its loans grow by $7 billion a year, driven by wealth management clients who take out mortgages or loans backed by their own funds.

But even among well-heeled customers, lending is expected to slow as rates rise, making mortgages more expensive, and because the low market reduces the cost of doing business, said the bank’s CFO Sharon Yeshaya. read more

“We’ve never seen such a large crackdown on consumer health,” Leon said. “Credits are still very good but this could shake up next year.”

Elizabeth Dilts Marshall Reports; edited by Michelle Price and Nick Zieminski

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