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US banks' loan-to-deposit ratio rises as loan growth, drop in deposits continue


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US banks' loan-to-deposit ratio rises as loan growth, drop in deposits continue

U.S. banks' loan-to-deposit ratio increased in the third quarter amid continued loan growth and drop in deposit balances.

The aggregate loan-to-deposit ratio for the industry was 62.0%, up from 60.2% in the second quarter and 57.0% in the third quarter of 2021, according to S&P Global Market Intelligence data. Before the second quarter, the ratio stayed relatively flat for three quarters.

Total loans and leases at U.S. banks rose 2.0% quarter over quarter to $12.001 trillion in the third quarter, though the pace of growth slowed compared to the second quarter when loans climbed 3.7%. On a year-over-year basis, loans were up 9.9%.

Third-quarter deposits amounted to $19.357 trillion, down 1.0% from the linked quarter and up 1.0% from a year earlier.

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Views on loans, deposits

Loan growth at banks continued in the third quarter even as rates moved higher, prompting many banks to raise their provisions for credit losses. Similarly, deposit runoff persisted in the quarter and caused funding worries to intensify.

Several banks kept their positive views on loan growth despite having weaker macroeconomic outlooks. Many companies also stayed optimistic about deposit growth despite expectations of escalated competition.

Bank of America Corp. anticipates recording high-single-digit loan growth, "maybe mid if things begin to slow a little bit," CFO Alastair Borthwick said on the company's third-quarter earnings call. The executive expects deposit balances to be "flattish, maybe down" industrywide, though the company will "outperform the industry ever so slightly."

JPMorgan Chase & Co. CFO Jeremy Barnum sees loan growth in 2023 as being dependent on the macro situation.

"We know that in recession environments, we tend to see lower loan demand. At the same time, we've got a lot of great initiatives going and client engagement and new clients," Barnum said on JPMorgan's third-quarter earnings call.

Fifth Third Bancorp projects deposit growth in the fourth quarter and in 2023, and management expressed confidence in its ability to fund loans even if loans grow faster than deposits.

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Largest year-over-year declines

Among the top 20 banks with the largest year-over-year decrease in loan-to-deposit ratio, 12 booked an increase in loans, while all reported deposit growth from the third quarter of 2021.

WebBank and Celtic Bank Corp., big Paycheck Protection Program lenders, continued to top the list with percentage point drops of 165.9 and 124.1, respectively, in their ratios.

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Largest year-over-year increases

All of the 20 companies with the largest increases in loan-to-deposit ratios recorded year-over-year loan growth. Only nine of those 20 banks grew deposits.

United National Corp. recorded the highest percentage point increase in its loan-to-deposit ratio, followed by Bankers' Bank. United National's ratio climbed 67.6 percentage points to 180.4%, and Bankers' Bank's ratio soared 59.9 percentage points to 116.5%.

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