As bank profits rise, a mixed picture for lending

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Alex Tovstanovsky, owner of used car dealership Prestige Motor Works, checks inventory with general manager Ryan Caton in Naperville, Illinois, USA on May 28, 2020. Photo taken on May 28, 2020. REUTERS / Nick Carey / File Photo

JPMorgan Chase & Co (JPM.N), the largest US bank and often presented as an indicator of the economy, on Wednesday announced a dramatic increase in its profits for the first quarter.

However, there was no strong evidence that Main Street consumers and businesses are eager to have more credit, after a year of pandemic-induced hibernation, to fuel the growth of the economy.

Indeed, the bank lending picture at the end of the first quarter was decidedly mixed, according to data from the U.S. Federal Reserve, with some indications that consumer credit demand is resuscitating but demand for core commercial loans remains. insufficient.

CONSUMER CREDIT

The most recent data from the Fed on all consumer credit is from February, which saw the strongest growth – nearly $ 27.6 billion – in three years. At over $ 4.2 trillion in total, it has more or less recovered to its all-time high before the February 2020 pandemic.

CREDIT CARD

The Fed offers a weekly snapshot of U.S. commercial bank balance sheets and, for most of the past year, has shown that consumers have only done one thing with their credit cards: pay them off.

Overdue balances on bank credit cards fell by around $ 115 billion between March 2020 and February 2021.

Since then, however, balances have increased by around $ 10 billion and are at their highest level since early December.

AUTOMOTIVE LOANS

Auto loans have been a surprising source of strength during the pandemic. Even though consumers cut back on credit card spending, they paid for big ticket items like cars and trucks. Vehicle sales in the United States recovered fairly quickly from late last spring, and auto loans from American banks hit an all-time high.

APPLICATION FOR BUSINESS LOANS

It was a very different picture for bread and butter business loans. The Fed’s most recent quarterly survey of bank loan officers in January showed only a slight improvement in the outlook for business loan demand in early 2021.

C&I LOANS

This prospect of weak demand may come from the fact that companies stocked up on loans about a year ago at the start of the pandemic, and with little to spend since they are now full of cash.

At the start of the pandemic, America’s top 25 banks saw their commercial and industrial loan portfolios explode as large corporations used their lines of credit to ensure they had liquidity as the crisis unfolded.

About a month after that, the boom in C&I demand hit small banks as companies took out loans under the wage protection program that was part of the first wave of pandemic relief measures adopted. by Congress last year.

Since then, however, C&I loan levels have steadily declined and are now at their lowest level in a year.

WALL STREET WINS

Yet there has been no shortage of credit provided globally by US banks over the past year. It’s just that most of it went to Wall Street rather than Main Street.

Total bank credit, at over $ 15.2 trillion at the end of March, increased by more than $ 1 trillion last year. Wall Street’s share in that – represented by the percentage of securities to total credit – climbed about 5 percentage points last year and now accounts for about a third of all bank loans. This is another record for Wall Street.

Our standards: Thomson Reuters Trust Principles.

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