Loan growth flatlines at big US banks

Sinking credit demand and tighter underwriting standards were evident in first-quarter lending activity, and banks have been giving weak outlooks for the rest of the year after a jump in interest rates.

Median sequential growth in gross loans at the 15 largest publicly traded banks was just 0.22%, with six posting declines, according to S&P Global Market Intelligence data.

With the Federal Reserve survey on loan supply and demand showing readings that rival previous recessionary periods, large banks are generally projecting 2023 loan growth in the low single-digit to mid-single-digit percentage range, a May 24 review of guidance by Jefferies analysts found.

Some banks say they are pumping the brakes as deposits become scarcer and more expensive.

"They are intentionally targeting slower loan growth" because of funding and the need to add loss reserves for growth, said Matt Pieniazek, president and CEO of Darling Consulting Group. "They're going to protect their house."

Commercial weakness

Sequential commercial and industrial (C&I) loan growth across the big banks slowed to a median 1.38% in the first quarter from 2.82% in the 2022 fourth quarter.

According to weekly data from the Fed, C&I loans across domestically chartered banks slipped 0.3% sequentially during the period corresponding to the first quarter. After seasonal adjustment, the drop was bigger at 1.4%. Both were the first declines since the third quarter of 2021.

Commercial real estate (CRE) loans at the big banks declined by a median 0.87% sequentially in the first quarter.

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Banks like Wells Fargo & Co. have said they are incrementally tightening CRE standards and working to "de-risk" office portfolios, reflecting widespread concerns about the sector.

First Citizens BancShares Inc. was a rare exception, posting fast loan growth in both commercial and consumer categories in the first quarter, largely reflecting its acquisition of the failed Silicon Valley Bank. For the rest of 2023, however, it expects declines in Silicon Valley Bank loans to be partially offset by 3% growth from its legacy operations.

More life in consumer

Consumer loans declined sequentially by a median 1.44% across the big banks in the first quarter, though the period is characterized by seasonal softness.

The weekly Fed data shows consumer loans down by 1.3% across domestically chartered banks during the period, but up 2.2% after seasonal adjustment. For credit cards, loans were down 2.0%, but up 4.3% after seasonal adjustment.

The Fed said that credit card demand was "basically unchanged" in the first quarter, according to its survey of senior loan officers.

At its investor day on May 22, JPMorgan Chase & Co. said that it did not loosen card underwriting during the pandemic and that it is only tightening "surgically" now.

The bank's forecast for mid-single-digit percentage loan growth in 2023 anticipates moderate wholesale growth and continued growth in revolving card balances, which reflect balances customers carry from month to month.