US banks post solid third-quarter loan growth

In the third quarter, major US banks reported solid growth in both loans and deposits, though they are facing challenges in retaining customer funds amid fierce competition and high interest rates. JPMorgan Chase, Citigroup, and Wells Fargo all saw an increase in net interest income, but they are paying more to keep customer deposits due to elevated borrowing costs. Bank of America, the second-largest US lender, also posted higher net interest income on Wednesday.

Bank of America CEO Brian Moynihan noted that economic uncertainty and geopolitical instability persist, but clients continue to signal a resilient and growing US economy. Citigroup reported an 11% increase in average deposits and a 12% jump in average loans, while Wells Fargo stated average deposits rose 10.7% and average loans grew 11% due to its consumer banking division.

JPMorgan, the largest US lender, saw a 4% rise in average deposits and a 2% increase in loans compared to a year ago. Bank of America's average deposits grew 2% in the third quarter, while average loans and leases increased 6% year-over-year.

Despite these resilient metrics, banks face mounting funding pressures as US Treasury yields surged, prompting customers to seek better returns elsewhere. This forces lenders to raise deposit rates, squeezing their margins. JPMorgan's deposit margin 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 dropped to 2.43% from 2.61% a year earlier.

Analysts have expressed concern about potential credit losses, as a weaker labor market and rising living costs may pressure borrowers, especially if prolonged conflicts lead to higher prices for essential goods and reduced discretionary spending. While there have been no significant cracks in overall bank credit quality, analysts warn that weakening labor conditions and increasing costs could impact borrowers' ability to manage debt obligations.

Although some banks have raised provisions for credit losses, JPMorgan's CFO, Jeremy Barnum, noted that consumers are not shifting away from discretionary items despite rising consumer prices. The Federal Reserve's recent interest rate hikes have led major US banks to increase their prime lending rates to reflect the higher borrowing costs for consumers and businesses.