As banks continue to wait for borrowing to resume amid the lingering effects of the pandemic, they’re still anticipating a rebound in both consumer and commercial lending later this year.
Top executives at large and regional banks who spoke at an industry conference this week pointed to pinched supply chains as the main culprit holding back commercial lending. Business clients have waited to take on new debt to build their inventories due to shortages of everything from new cars to household products like diapers.
Banks’ consumer clients, meanwhile, are still sitting on unusually high levels of savings, which they are using to
JPMorgan Chase CEO Jamie Dimon indicated Monday that the nation’s largest bank by assets continues to see little to no growth in commercial lending, though he expressed hope that businesses will start borrowing again soon.
“Middle-market utilization is lower than we’ve ever seen it,” Dimon said in comments at a virtual conference hosted by Morgan Stanley, “but that will change the second they start investing in inventory receivables.”
Dimon also predicted that credit card loans will start to recover, though he did not venture a prediction on when that will happen. U.S. consumers have $2 trillion more in their checking accounts than they did in February 2019, he said.
“That's a huge number,” Dimon added. “It’s kind of like the pump is primed for the future, and they will borrow again at one point.”
Commercial banks in the U.S. held $10.3 trillion of total loans and leases during the week that ended June 2, down slightly from May and more than 4% below the year-earlier level, according to Federal Reserve data.
Wells Fargo’s commercial loans are also not growing yet, partly becaus of high liquidity levels at businesses, in addition to low inventory levels and supply chain difficulties, Chief Financial Officer Michael Santomassimo said Tuesday.
“We are seeing some encouraging signs around pipelines and conversations with clients,” Santomassimo said. “But it's still early, I think, to really see that come through on the commercial side at this point.”
Most of the consumer lending sectors are “sort of flattish at this point,” Santomassimo said. Wells Fargo is seeing encouraging trends in many consumer spending categories that were hit hard by the pandemic, but elevated payment rates have suppressed card loans.
“We’ll see how that shakes out 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 since remained at those levels, Chief Financial Officer Mark Mason said Tuesday. But payment rates are also high, he noted.
Citi expects a pickup in card loan growth in the second half of the year, Mason said. But the rate of growth is ultimately tied to the excess liquidity in the system, which is connected to government stimulus spending, he noted.
Executives at smaller regional banks also reported seeing early signs that lending will rebound in the second half of 2021, with consumers expected to return to more normal spending patterns and the inventory shortfalls perhaps starting to ease.
Student loans could be a bright spot as campuses reopen in the fall, and auto financing has been reliable despite a shortage in the microchips that are needed for car manufacturing, said John Woods, chief financial officer of the $187 billion-asset Citizens Financial Group in Providence, Rhode Island.
Meanwhile, the bank’s conversations with commercial clients have been “very encouraging,” with a number of businesses looking to invest in capital expenditures and build inventory, Woods said.
“Frankly, pipelines at this stage are higher than they've been even compared to pre-pandemic,” Woods said.
The $86.3 billion-asset Comerica in Dallas also reported pipelines for potential loans bobbing above pre-pandemic levels.
“We've seen that now for several months, and it's encouraging as we're kind of moving into the latter half of the year,” Peter Sefzik, executive director of Comerica’s commercial banking unit, said Tuesday.
At the $175 billion-asset Huntington Bancshares, annual loan growth is expected to land in the 1% to 3% range this year, Chief Financial Officer Zach Wasserman said Tuesday. Consumer balances are trending higher due to growth in residential mortgages, as well as in loans for cars, RVs and boats. The Columbus, Ohio-based bank is also seeing a pre-pandemic return of commercial borrowing demand, he said.
The credit card giant Discover is expecting the surge in paydowns of existing consumer balances to begin tapering off soon, as new borrowing picks up, President and CEO Roger Hochschild said Tuesday.
“We feel good about returning to loan growth by the end of the year,” he said.
Truist Financial Chairman and CEO Kelly King pointed out that consumers and business owners are now carrying the scars from two major crises since 2008, which could affect their borrowing behavior.
The $518 billion-asset Truist, of Charlotte, North Carolina, is tempering its expectations about loan growth, as clients may “hold on to much more liquidity than you might expect, while they go ahead and start borrowing,” King said.
Fifth Third Bancorp in Cincinnati is expecting “fairly muted” commercial loan growth, according to Chairman and CEO Greg Carmichael, though he said that borrowing may pick up in the second half of the year.
The expiration of enhanced pandemic-era unemployment benefits in some states could ease labor shortages at business clients, but those companies are still dealing with supply chain problems, particularly a shortage of semiconductors, Carmichael said.
“I suspect it may 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
Credit line utilization at the $560 billion-asset Pittsburgh bank has started to return somewhat, and is up about 40 basis points so far in the second quarter, Demchak said. But in commercial lending, loan growth isn’t expected to bounce back until the supply chain issues are fixed, he said.
“It’s not anywhere near what should be happening here,” Demchak said. “It’ll come. I can’t predict when.”
