Big bank loan growth stuck in low gear amid high interest rates

Loan growth at big banks appears stuck after first-quarter performances extended the weaknesses that have lasted for several quarters.

Median sequential loan growth was negative 0.5% across the 15 biggest US banks during the period, according to data from S&P Global Market Intelligence. There were also median declines in consumer and commercial real estate (CRE), and only 0.1% median growth in commercial and industrial (C&I).

Loan growth remained soft through the first half of the second quarter, according to weekly Federal Reserve data. Moreover, while the breadth of banks reporting further tightening of standards and further declines in credit demand has generally diminished in a closely watched Fed survey of senior loan officers, more banks continue to report tighter standards and softer demand than the opposite. Net negative readings are correlated with negative year-over-year loan growth with a lag of several quarters, Jefferies analysts have found.

"Loan demand is not particularly strong," Wells Fargo & Co. President and CEO Charlie Scharf said at an investor conference May 29. "Companies are certainly sitting there saying that at some point, rates will come down. I have time. They have financed themselves pretty conservatively going into this rising rate environment. So they've got a fair amount of flexibility."

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Waiting on rates

While C&I loans edged up at the median bank, CRE loans were down by a median 0.7%.

Growth in both categories has shown continued weakness so far in the second quarter, according to the Fed data, with seasonally adjusted C&I loans across domestically chartered commercial banks up 0.5% from March 27 through May 22 and CRE loans flat.

The softness is due to the current rate environment, PNC Financial Services Group Inc. Chairman, President and CEO William Demchak said. "There seems to be a big wait-and-see around interest rates. The presumption [was] that rates were going to go lower. We started the year with everybody saying there's going to be seven cuts. Who wants to borrow, let's wait for the seven cuts," he said at the same conference.

"Line usage has moved up a hair, but it's sort of sitting there," Bank of America Corp. Chairman and CEO Brian Moynihan said at the conference. Clients are worried about various risks and saying, "I'm being careful slowing things down, still growing, still feel good about my overall business. But I'm not hiring as much. I'm not buying equipment as fast."

Seasonal impact

Consumer loans dropped 2.4% at the median bank.

The decline reflects seasonal weakness, particularly in credit card loans. After seasonal adjustment, card loans increased 2.8% across domestically chartered commercial banks from Dec. 27 through March 27, compared to a decline of 3.2% without seasonal adjustment, according to the Fed data.

Year over year, card loan growth was 6.7% at May 22, still relatively strong, though down from growth topping 15% for most of 2022 and early 2023, according to the weekly data.

JPMorgan Chase & Co. expects robust card loan growth to continue in 2024 with a double-digit percentage increase, supported by customer borrowing levels that are still normalizing from post-pandemic lows.

Chairman and CEO Jamie Dimon emphasized that the bank expects to add $2 billion to credit loss reserves this year because of the growth, saying that analyst projections for the provision expense were too low.