A Look At Outstanding Loans For The U.S. Banking Industry, And How They Have Changed Since 2012

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Residential mortgages, commercial & industrial (C&I) loans and commercial real estate (CRE) loans together form nearly 70% of all outstanding loans for the U.S. banking industry.

CB_QA_USLoanBreakup_FY16

* Credit card loans include unsecured revolving credit, while retail loans include auto loans, student loans and other secured consumer loans. Other loans comprise of loans to financial institutions as well as the lending of federal funds and reverse repurchase agreements.

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The U.S. banking industry has seen loans grow at an average rate of 6% each year over 2012-16. While commercial loans have seen the largest growth of over 10% annually over this period, the mortgage industry has largely remained stagnant.

CB_QA_USLoanChange_FY16

The notable rate of growth in commercial & industrial loans stems from the prolonged low interest-rate environment that has been prevalent since the economic downturn of 2008. Easy availability of cheap credit has spurred the demand for loans, while a steady improvement in economic conditions made individuals and companies optimistic about the future – driving loan demand further. As for the mortgage industry, activity levels peaked in mid-2012 thanks to government-led initiatives to clean up loans handed out by banks in the run-up to the economic downturn. But the demand for new mortgages tanked over subsequent years – with mortgage loans being normally paid off at a faster rate than new ones were being handed out. This resulted in the total mortgage loan portfolio falling over 2013-14 before recovering in 2015. Notably, the sizable growth in retail loans over recent years has been fueled by a sharp increase in the volume of auto loans. Auto loans are responsible for nearly 65% of the ~$646 billion in retail loans outstanding across banks in the country.

While continued improvement in U.S. economic conditions is expected to drive loan growth across categories over coming years, the rate of growth is likely to be slower as the Fed hikes interest rates at regular intervals. The chart below captures Capital One’s portfolio of outstanding auto loans and includes our forecast for these loans. You can see how changes to these loans affect our estimate for the bank’s shares by modifying this chart.

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