Relaxed Commercial Lending Terms Drove Loan Volume Across U.S. Banking Industry In Q2

by Trefis Team
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The U.S. banking industry witnessed a sharp improvement in the volume of commercial and industrial loans over the second quarter of 2018 as many banks relaxed lending requirements for businesses. Notably, the demand for commercial and industrial loans have been subdued for nearly two years, with the total portfolio of commercial loans held by U.S. banks remaining largely level at $2.1 trillion. But banks have made it easier for businesses to access credit over recent months – focusing in particular on small businesses. This helped the total commercial loan portfolio for the U.S. banking system jump to nearly $2.2 trillion by the end of Q2.

The move by banks makes sense, as the strong outlook for the U.S. economy in the near future should keep loan losses from increased commercial lending under check. At the same time, the banks have also sought to limit charge-off rates for their overall loan portfolio by tightening requirements for credit cards. It should be noted that card lending has grown at a rapid rate over recent quarters as upbeat consumer sentiment has increased the risk appetite among individuals.

While we expect credit card loans to continue their strong growth over the coming quarters despite more stringent lending policies, the relaxed commercial lending requirements should play a key role in loan growth in the near future. We capture the trends in loans and deposits for each of the five largest commercial banks in the country – JPMorgan ChaseBank of AmericaWells FargoCitigroupU.S. Bancorp – through interactive dashboards, while also detailing the impact of changes in these key factors on their share price.

* Credit card loans include unsecured revolving credit, while retail loans include auto loans, student loans and other secured consumer loans. Other loans primarily include loans to financial institutions, to foreign governments, and for agricultural purposes.

As shown above, mortgages, commercial loans and CRE loans now represent roughly equal parts of the total portfolio of loans across U.S. banks (~24%). Notably, mortgages made up more than 30% of these loans in 2011, but a slowdown in the mortgage industry and strong growth in commercial lending over 2012-2014 has resulted in all these loan categories being nearly identical in size now. Also, as detailed in the table below, the U.S. banking industry saw total loans grow by nearly 5% between Q2 2017 and Q2 2018 – an improvement from the 4% year-on-year growth for the previous quarter.

In subsequent articles, we will highlight the changes in the loan portfolio of the five largest U.S. banks over recent quarters, while also detailing the relative importance of individual loan categories to the business model of these banks.

Details about how changes to key Loan and Deposit parameters affect the share price of the five largest U.S. commercial banks can be found in our interactive model for JPMorgan Chase | Bank of America | Wells Fargo | Citigroup | U.S. Bancorp

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