Awash with Cash, Banks Ready to Open the Lending Floodgates

By Big Data Federation, Inc.

While profits for regional banks in 2020 and 2021 were held back by near-zero rates and low non-mortgage loan demand, prospects for profit expansion are looking up for 2022. This is mainly the result of higher borrowing rates for mortgages and other loans, stemming from the Federal Reserve winding down its expansionary monetary policy and raising the federal funds rate, coupled with continued healthy growth in demand for mortgages and other loans.

Given U.S. consumers continue to accumulate a record level of deposits, regional banks' cash holdings have expanded, which will help meet growing loan demand. Higher borrowing rates also lead to better profitability as banks shift excess cash to Treasuries and other securities that generate interest income.

  • Loans rose +1.1% MoM (+2.9% YoY), representing the fastest monthly increase in 2021. It surpassed pre-pandemic figures by 2.6% due to strong demand for consumer loans



 

  • Consumer loan activity grew +1.1% MoM, +7.2% YoY, and +3.0% YoY2, supported by loans for autos and other personal expenditures
  • Commercial & industrial loan (C&I) activity increased +2.0% MoM yet were under year-over-year comparisons (-2.5% YoY), in part because of the unusually elevated figures arising from the inclusion of the Paycheck Protection Program (PPP) loans. Nonetheless, at this growth rate, C&I loans will likely exceed pre-pandemic levels next month (-1.8% YoY2)
  • Residential real estate loans were stable at +0.4% MoM but have cooled compared to the last couple of years due to rising mortgage rates, recording -2.0% YoY and -5.0% YoY2
  • Commercial real estate loans remained stagnant at +0.2% MoM, +0.3% YoY, +0.2% YoY2, - albeit slightly higher than the pre-pandemic (2018-19) average monthly growth rate of +.1%              
  • Deposits grew +1.2% MoM, but pandemic-accumulated savings have still not been spent down (+11.0% YoY/+37.5% YoY2)
  • Cash holdings expanded +1.2% MoM, with banks continuing to hold more cash compared to past periods (+13.2% YoY/+136.5% YoY2)
  • Security holdings increased +1.7% MoM, +20.3% YoY, and +51.3% YoY2 as banks pursued non-loan profit opportunities with treasury yields and mortgage rates climbing from previous lows
    • U.S. Treasury and agency securities accelerated +1.5% MoM, +20.7% YoY, and +57.4% YoY2
    • Other government-backed and asset-backed securities advanced +3.1% MoM, +18.1% YoY, and +24.1% YoY2
* YoY2 = comparison with pre-pandemic 2019

 

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