Cautious approach by borrowers, lenders drag US banks' C&I lending in Q2 2023

Commercial and industrial lending at US banks generally dragged in the second quarter as customers held off on borrowing, while some lenders exercised caution in lending as they tried to protect asset quality.

Total commercial and industrial (C&I) loans declined sequentially in the second quarter and posted the slowest year-over-year growth rate in the past five quarters, according to S&P Global Market Intelligence data.

Sequential slowdown

The total C&I loan balance in the second quarter slightly decreased to $2.517 trillion from $2.529 trillion in the first quarter.

Year-over-year C&I loan growth slowed to 1.2% from 5.6% in the first quarter.

"On commercial, we saw a little bit of a slowdown in this quarter, driven by higher pay downs from borrowers and weaker customer demand as opposed to any credit availability from us. We are still open for business for loans," Bank of America Corp. CFO Alastair Borthwick said during the company's second-quarter earnings call.

"While loan growth has slowed, it's generally remained still ahead of GDP, and commercial client conversations remain solid as our clients seem to be waiting for some of the economic uncertainty to lift before borrowing further," Borthwick added.

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Meanwhile, East West Bancorp Inc. chose to be vigilant in lending, especially to new customers, including those coming from failed banks.

"If you look at C&I, you notice that commitment has gone up 15%, but the outstanding balance has gone up 1%. We book a lot of commitment, but it's going to take a little while to do the drawdown," East West Bancorp President and CEO Dominic Ng said during the company's second-quarter earnings call.

"We just gradually start taking on these new clients, making sure that they get the right experience, and then we also don't want to get overwhelmed by the surge of these inquiries and end up neglecting our existing customers," Ng said, adding that East West is doing regular loan-by-loan reviews to protect the bank's asset quality.

Delinquency ticks up

Delinquency in the segment ticked up sequentially in the second quarter.

Past due and nonaccrual C&I loans totaled $25.08 billion, up from $24.72 billion in the first quarter. Delinquent C&I loans accounted for 1% of US banks' total loans and leases in the second quarter, compared to 0.98% in the first quarter.

Year over year, however, C&I delinquency rate remained lower in the second quarter.

Top C&I lenders

Bank of America remained the biggest C&I lender in the second quarter, although its C&I loan balance edged lower both sequentially and year over year.

First Citizens BancShares Inc. still posted the biggest year-over-year jump in C&I loan balance in the second quarter, almost doubling its balance in the year-ago quarter.

First Citizens acquired failed lender Silicon Valley Bank in March.

"Complementing our early success in the SVB integration are our team's efforts in the broader commercial banking business, where strong momentum continued in the second quarter," First Citizens President Peter Bristow said during a call to discuss the company's second-quarter earnings.