NEW YORK—U.S. bank executives said they're optimistic on loan growth as demand for borrowing from retail and business customers bounced back in the second quarter from the lows of the pandemic. But they are warning demand could weaken later this year if the worsening economic outlook starts to hurt consumer confidence, Reuters reported.
Analysts and investors have been carefully watching loan growth, noted Reuters.
“As the economy bounced back from the pandemic, demand for loans began to pick up in the first quarter driven by consumer spending and companies bulking up inventories,” Reuters reported. “That trend continued during the second quarter, despite aggressive U.S. Federal Reserve interest rate rises sparking recession fears.”
JPMorgan Chase & Co and Wells Fargo & Co , two of the biggest U.S. 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 deteriorating credit quality, according to the report.
JPMorgan Forecast
During second-quarter earnings calls, executives at JPMorgan - the country's largest lender - said they expect loans to grow by the mid- to high-single digits this year, Reuters stated.
“That growth and Fed rate rises were good news for banks, boosting net interest income, the difference between the interest earned on loans and paid out on deposits. Citigroup, for example, said gross loan yield had risen for the prior five consecutive quarters to reach 5.81% in the second quarter,” Reuters said.
"Results in 2Q22 so far reinforce our positive view," wrote analysts at Wells Fargo, citing strong credit quality, growth in loans and a 10% quarter-on-quarter rise in net interest income,” according to Reuters. “They said commercial loans are showing the best growth in 14 years.”
Corporate Clients Borrowing
Wells Fargo, JPMorgan and Citigroup all said corporate clients borrowed more in the second quarter, often to cover increased costs created by soaring inflation. JPMorgan, for example, saw strong growth in corporate and industrial loans, which grew 6% on higher use of revolving facilities and new accounts opened, while commercial real estate loans grew 3%, Reuters said.
While a slump in mortgage lending due to rising rates was a drag on consumer lending portfolios, credit card loans were way up, with JPMorgan and Wells Fargo both reporting a 17% jump, Reuters added.
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