Bankers are bullish on lending prospects, even as headwind persists

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As banks continue to await a resumption of borrowing amid the lingering effects of the pandemic, they continue to await a recovery in both consumer and commercial lending later this year.

Executives at major and regional banks speaking at an industry conference this week cited shrinking supply chains as the main reason holding back commercial lending. Business customers have been waiting to take on new debt to replenish their stocks due to a shortage of everything from new cars to household goods like diapers.

In the meantime, bank clients continue to have unusually high levels of savings, which they use to pay the debt off

JPMorgan Chase CEO Jamie Dimon (left) predicted a rebound in commercial lending once inventories began to rebound, while Truist Financial CEO Kelly King (center) and PNC Financial Services Group CEO Bill Demchak (right) suggested reasons for caution.

Bloomberg News, contributed

JPMorgan Chase CEO Jamie Dimon said Monday that the nation’s largest bank by assets continues to see little to no commercial lending growth, although he hopes businesses will start borrowing again soon.

“The average market utilization rate is lower than we have ever seen,” Daimon said in a commentary at a virtual conference hosted by Morgan Stanley, “but that will change as soon as they start investing in inventory receivables.”

Daimon also predicted that credit card loans would start to recover, although he did not dare to predict when this would happen. US consumers have $ 2 trillion more in checking accounts than in February 2019, he said.

“That’s a huge amount,” added Daimon. “It’s like the pump is set for the future, and at some point they’ll get busy again.”

US commercial banks held $ 10.3 trillion in total loans and leases during the week ending June 2, according to the Federal Reserve, slightly less than in May and more than 4% below the level seen at the same time last year.

Wells Fargo’s commercial loans have also not yet picked up, in part due to high levels of liquidity in businesses, as well as low inventory levels and supply chain constraints, CFO Michael Santomassimo said Tuesday.

“We are seeing some encouraging signs around pipelines and customer conversations,” Santomassimo said. “But I think it’s too early to really see it on the commercial side.”

Most of the consumer lending sectors are “flat so far,” Santomassimo said. Wells Fargo sees encouraging trends in many of the consumer spending categories hit hard by the pandemic, but higher payment rates have led to a decline in credit cards.

“Let’s see how this changes in the second half of the year,” Santomassimo said.

At Citigroup, credit card spending returned to pre-pandemic levels by the end of March and has remained at that level ever since, CFO Mark Mason said Tuesday. But pay rates are also high, he said.

Citi expects credit card growth to accelerate in the second half of the year, Mason said. But the rate of growth is ultimately linked to excess liquidity in the system, which is tied to government spending on stimulus, he said.

Small regional bank executives also reported the first signs of a recovery in lending in the second half of 2021, when consumers are expected to return to more normal spending patterns and inventory shortages may begin to recede.

Student loans could be a bright spot as campuses reopen in the fall and car loans remain robust despite a shortage of microchips needed to make cars, said John Woods, chief financial officer of the $ 187 billion Citizens Financial Group. Providence, Rhode Island.

Meanwhile, Woods said the bank’s conversations with commercial clients were “very encouraging,” and a number of businesses are looking to invest in capital expenditures and build up inventories.

“To be honest, the pipelines are taller at this stage than they were even compared to the pre-pandemic period,” Woods said.

Comerica, in Dallas, with $ 86.3 billion in assets, also reported that potential loans have soared to pre-pandemic levels.

“We have seen this for several months now, and it is encouraging as we kind of approach the second half of the year,” Peter Sefzik, chief executive of Comerica’s commercial banking division, said Tuesday.

The company’s chief financial officer Zach Wasserman said on Tuesday that Huntington Bancshares, with $ 175 billion in assets, is expected to grow from 1% to 3% annualized loan growth this year. Consumer balance sheets are on a rising trend due to the rise in home mortgages, as well as loans for the purchase of cars, RVs and boats. The Columbus, Ohio bank is also seeing a pre-pandemic rebound in commercial borrowing, he said.

Credit card giant Discover expects growth in payments on existing consumer account balances to soon begin to shrink as new borrowing rises, President and CEO Roger Hochschild said Tuesday.

“We are pleased to return to credit growth by the end of the year,” he said.

Truist Financial Chairman and CEO Kelly King noted that consumers and business owners now bear the scars of two major crises since 2008 that could affect their borrowing behavior.

According to King, Truist, with $ 518 billion in assets, has toned down its credit growth expectations because customers can “retain much more liquidity than you might expect as they continue and start borrowing.”

Fifth Third Bancorp in Cincinnati expects “fairly modest” commercial lending growth, according to chairman and CEO Greg Carmichael, although he said borrowing could pick up in the second half of the year.

Expiring extended unemployment benefits during the pandemic in some states could alleviate labor shortages for business customers, Carmichael said, but these companies still face supply chain challenges, especially semiconductor shortages.

“I suspect it might get worse before it gets better,” Carmichael said.

PNC Financial Services Group CEO Bill Demchak was one of the few executives who earlier this year skeptical about the big bounce in lending in the second half of the year. His remarks on Tuesday were just as cautious.

Demchak said the use of the line of credit at the bank with $ 560 billion in assets began to recover somewhat and rose by about 40 basis points in the second quarter. But in commercial lending, credit growth is not expected to bounce back until supply chain problems are addressed, he said.

“This is far from what should be happening here,” Demchak said. “Will come. I cannot predict when.



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