Big bank lending growth lags as corporate repayments offset small business activity

Small US banks have continued to post explosive growth in commercial lending as federal loans to aid small businesses pile up on balance sheets, while increases at large banks appear to have been limited by repayment lines business credit.

Meanwhile, consumer loans continued to decline across the industry. The widespread collapse in consumer spending amid the COVID-19 pandemic appears to have offset deteriorating credit card payment rates as borrowers opt for forbearance programs offered by lenders.

Excluding the 25 largest banks by assets, commercial and industrial loans rose 3.9%, or $ 34.2 billion, in the week ending May 6, according to seasonally adjusted data from the Federal Reserve’s latest H.8 report on commercial banks operating in the United States. Overall, C&I loans rose 36.7%, or $ 247.06 billion, at these banks since February 26.

Banks of all sizes have added massive amounts of loans to their balance sheets as part of the Small Business Administration’s Paycheck Protection Program. As of May 16, lenders with more than $ 50 billion in assets had made $ 191.7 billion in PPP loans, and small banks had lent $ 321.57 billion.

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But while C&I loans from the 25 biggest banks have risen 24.9%, or $ 323.7 billion, since February 26, growth has lagged small banks in each of the past four weeks. for which data is available. The initial surge in growth at the big banks in March was largely due to borrowing from large corporate lines of credit. Now, healthy companies with access to thawed capital markets appear to be using the proceeds of newly issued bonds to pay down their bank lines.

BofA Global Research analysts estimated in a May 18 memo that investment grade companies in the United States have refinanced around $ 21 billion in corporate bond lines so far, and expect to what they do the same with about $ 100 billion remaining now that the direct issue market is “wide open.”

Analysts also estimated that investment-grade firms had raised $ 350 billion in cash since the threat of the coronavirus outbreak became clear, an amount they believe more than enough to cover the net cash deficit at which they predict that businesses are facing as a result of the crisis. “We expect businesses to be more and more confident in spending war chest instead of issuing,” they wrote, adding that once they refinanced bank lines, first grade “have very little to do” to raise new debt.

Generally, banks have reported tighter C&I credit standards and less competition from peers and non-banks, and credit spreads have widened.

But even though C&I growth at major banks has lagged, it has remained strong with an increase of 1.2% in the week ended May 6. In addition, loan levels remain much higher than during most of the first quarter. JPMorgan Chase & Co. increased its forecast for net interest income in early May, reiterating that it had funded around $ 29 billion in PPP loans. Also in early May, PNC Financial Services Group Inc. raised its forecast for average second quarter loan growth, in part due to PPP activity.

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Consumer loans from US commercial banks fell 0.5% in the week ended May 6, led by a 0.9% drop in credit card loans. This marked the seventh consecutive weekly decline. Credit card loans have now fallen 5.5% year over year to $ 776.58 billion.

The decline in card receivables took hold despite a sharp drop in payment rates in April, or the percentage of outstanding balances that cardholders pay off in any given month. Keefe Bruyette & Woods analysts calculated that the average payment rate of card lenders in the United States fell 150 basis points from the previous year to 23%, including declines at Bank of America Corp ., Capital One Financial Corp., Citigroup Inc. and Discover Financial Services. The deterioration reflects “the challenges borrowers face in the COVID-19 environment as well as postponements granted by card issuers,” KBW analysts wrote.

The sharp drop in consumer spending appears to be the main force behind the decline in card receivables. At American Express Co., consumer card loans fell 13.5% year-on-year to $ 50.5 billion in April, which Compass Point analysts said reflected the importance of spending. of travel, entertainment and dining for the company’s portfolio; and its focus on “the high-end consumers who pay off their balances faster.”

Compass Point analysts predicted that “Amex’s portfolio will continue to shrink as it will take some time for travel expenses to return even as the US economy begins to gradually open up.”

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