U.S. banks post solid loan growth in third quarter, but face increased competition for deposits

By Pritam Biswas and Prakhar Srivastava

Oct 13 (Reuters) – U.S. banks reported solid loan and deposit growth in the third quarter, but lenders are paying a premium to hold on to their customers’ funds in an environment of high and fiercely competitive interest rates.

JPMorgan Chase, ‌Citigroup and Wells Fargo all reported higher net interest income on Tuesday, even as investors worried that soaring bond yields and high borrowing costs would stifle demand for loans and trigger a deposit flight.

Bank of America, the second-largest US lender, also reported an increase in net interest income on Wednesday.

“The prevailing economic uncertainty and geopolitical instability are still present, but what our customers are actually doing continues to demonstrate a resilient and growing economy in the United States,” Bank of America CEO Brian Moynihan said on a conference call with analysts.

Citigroup reported an 11% increase in average deposits and a 12% increase in average loans. Wells Fargo said average deposits rose 10.7%, alongside an 11% rise in average loans backed by its consumer banking division. JPMorgan, the largest U.S. lender, reported a 4% increase in average deposits and a 2% increase in loans compared to last year.

Bank of America’s average deposits increased 2% in the third quarter, while average loans and leases increased 6% from a year ago.

Despite resilient indicators, banks face increasing funding pressures. As U.S. Treasury yields jumped in the third quarter, customers looked for better yields elsewhere, forcing lenders to raise deposit rates to prevent capital outflows and reduce their margins.

This was illustrated by JPMorgan’s deposit margin which fell to 2.78% in the third quarter from 2.79% a year ago and Wells Fargo’s net interest margin on a taxable basis which fell to 2.43% in the reported quarter from 2.61% a year earlier.

“Loan and deposit growth continues to advance, although it may raise some concerns about deposits,” said Brian Foran, an analyst at Truist.

POTENTIAL CREDIT LOSSES AT INTEREST

So far, analysts have said there have been no significant cracks in overall bank credit quality, suggesting households have continued to manage their debts.

A weakening labor market and rising costs of living could put pressure on borrowers, particularly if prolonged conflicts drive up prices of essential goods and reduce discretionary spending.

Despite concerns that rising consumer spending is just a reflection of inflation crowding out nonessential purchases, internal data doesn’t show consumers moving away from discretionary items, Jeremy Barnum, JPMorgan’s chief financial officer, said on a call with analysts.

U.S. consumer prices rose 3.4% in the 12 months through August, matching July’s rise, while a measure of core inflation posted its biggest monthly gain in four months.

U.S. job growth slowed more than expected in September. Sharp downward revisions to payrolls in previous months have added to uncertainty about the economic outlook and the potential strength of future loan demand.

Wells Fargo and Citigroup increased their provisions for credit losses in the third quarter, a trend that other banks may soon follow in the current macroeconomic landscape.

In September, major U.S. banks raised their prime rates following the Federal Reserve’s rate hike that increased borrowing costs for consumers and businesses.

(Reporting by Pritam Biswas and Prakhar Srivastava in Bangalore; editing by Pooja Desai, Nick Zieminski, Rod Nickel)