According to the earnings report of the big banks in the United States, there has been a slowing down in the growth of loans. Executives in the banking sector, however, assured that they were still experiencing demand from borrowers that was healthy. They also said that there was no justification on worries over the economy’s state.
Citigroup Inc and JPMorgan Chase & Co both recorded first-quarter earnings which were higher than what analysts had been expecting. This was based largely on big increases in revenues emanating from trading. Wells Fargo & Co, on other hand, saw a dip in profits as a result of slowing growth in mortgage banking. Compared to Citigroup and JPMorgan Chase, Wells Fargo has a heavy reliance on traditional lending but less dependence on trading revenues.
The earnings reports seemed to confirm concerns by investors and analysts alike that a higher-interest rates regime and the uncertainty occasioned by recent geopolitical events could result in slower economic growth and this could also hurt the bottom line of lenders.
Banking executives however allayed those fears saying that there was strong demand from clients who possessed impressive credit scores.
“I wouldn’t overreact to the short term in our loan growth with so many things that affect it,” Jamie Dimon, the chief executive officer of JPMorgan said.
Declining growth rates
JPMorgan’s core loan portfolio was an average of $812 billion in the first quarter which was an annualized increase of 9%. That was, however, a decline of 12% compared to the previous quarter. It was also a decline of 17% from one year ago. The annualized loan growth rate of Wells Fargo was 4% and that has also been declining in the past one year.
In Citigroup’s loan book, there was skewing caused by the purchase of a credit card business and divestitures. When those matters are adjusted for, the first quarter’s growth rate of the loan book was 5%. Adding to the concerns that lending is slowing is data from the Federal Reserve which showed that there was a slight decline in loans in 2017’s Q1.
Partly contributing to the slowing loan growth is the fact that a couple of corporate borrowers have resorted to issuing bonds instead of borrowing from banks. As for consumer lending where there is still some growth, the competition is fierce and interest rates have had to be cut and fat rewards doled out in order to win customers.