Upbeat Card And Commercial Real Estate Lending Drive Growth In Bank Credit In The U.S.

by Trefis Team
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The Fed’s ongoing rate hike process has hurt loan growth across U.S. banks, with demand for commercial and industrial loans remaining subdued for nearly two years now. Add to this the fact that the mortgage industry slumped in Q1 to well below the already low levels seen in the last three years, and that explains why total loans across commercial banks have only grown by 4% year-on-year since Q1 2017 – in sharp contrast to the double digit loan growth reported by the industry nearly each quarter over 2014-16 thanks to record low interest rates.

But a couple of loan categories stand out as they continue to witness strong growth despite rising interest rates: credit card loans and commercial real estate (CRE) loans. While CRE loans have been among the strongest growing loan categories since late 2012, card loans across U.S. banks swelled the most over the last four quarters. This trend is attributed to an increase in risk appetite among consumers, who have started to add debt given the strong economic outlook. This is a welcome development for the banks, as it should gradually see loan growths improve across categories 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 (~23%) – with outstanding mortgages falling the most in proportion (from over 30% in 2011). The U.S. banking industry grew by just 4% between Q1 2016 and Q3 2017. While card loans grew by 7.3%, CRE loans followed with gains of 5.6% year-on-year.

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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