Loan Growth Slows Among Banks, but FDIC Sees Industry Strength

By Jeff Bater

Loan growth among U.S. banks slowed for the third consecutive time, the Federal Deposit Insurance Corporation said, but the agency is characterizing the industry’s performance as positive.

Total loans and leases increased by $337.6 billion during the 12-month period that ended June 30, according to the FDIC’s quarterly report on the profits of banks it insures. The 3.7 percent increase marked a third straight drop in the annual growth rate for total loans and leases, and was considerably lower than the 6.7 percent annual growth rate seen a year earlier.

While acknowledging the slowdown, Martin Gruenberg, the FDIC chairman, pointed out the economy was going into its ninth year of a relatively modest expansion, and he underscored that bank profits in the second quarter rose 10.7 percent to $48.3 billion.

The earnings increase was mostly due to a sharp climb in net interest income. The industry’s average margin has gone up amid rising short-term interest rates.

‘Pretty Good Shape’

“The bottom line, the industry remains in pretty good shape, and a source of support and strength to the economy,” Gruenberg said during an FDIC briefing Aug. 22 to discuss the earnings numbers. “We’re in the ninth year now, into the ninth year of an expansion. So it’s frankly not surprising that you might see some slowing of loan growth.”

Lending to small businesses was particularly strong in the second quarter, suggesting confidence among entrepreneurs in the economy, according to the American Bankers Association. Banks, however, moderated their enthusiasm for auto lending, showing caution after a long period of robust vehicle sales.

“Banks remain wary of emerging risks, particularly as the Fed continues its slow progress toward normalizing interest rates,” ABA chief economist James Chessen said in a statement.

The Trump administration has made a case for relaxing financial rules in order to encourage lending and support stronger economic growth. In a report to President Donald Trump, Treasury Secretary Steven Mnuchin said Dodd-Frank, with its sweeping scope and excess costs, resulted in a slow rate of bank asset and loan growth.

The Treasury report, released in June, said small-business lending was one of the most anemic sectors. “The lack of tailoring and imprecise calibration in both capital and liquidity standards have diminished the flow of credit to fulfill loan demand,” it said.

Gruenberg, responding to a question during the briefing, said the slowing loan growth rate highlighted in the FDIC report could reflect banks’ attention to credit quality in extending its loans. “The issue seems to be more related to a question of demand for loans, rather than an industry’s ability to provide credit and supply of credit,” he said, adding that the growth rate remains substantial.

To contact the reporter on this story: Jeff Bater in Washington at jbater@bna.com

To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com

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