Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Regional bank loan growth could hint at healthier supply chains

EconomyOct 16, 2021 07:00AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: A street sign for Wall Street is seen outside the New York Stock Exchange (NYSE) in New York City, New York, U.S., July 19, 2021. REUTERS/Andrew Kelly/File Photo

By David Randall

NEW YORK (Reuters) - If regional banks show signs of accelerating loan growth when they report earnings in the week ahead, it could signal an easing of the supply chain bottlenecks that have weighed down the U.S. economic recovery from the pandemic, analysts and investors said.

Overall, small banks accounted for 63% of the approximately $520 billion in loans through the federal Paycheck Protection Program launched in response to the pandemic. The program allowed small businesses to take loans that either could be forgiven or would have a 1% interest rate, according to the U.S. Small Business Administration https://www.sba.gov/sites/default/files/2020-07/PPP%20Results%20-%20Sunday%20FINAL.pdf.

Increasing demands for new loans at higher interest rates could signal that small businesses are securing inventory and expanding, said Dave Ellison, a portfolio manager at Hennessy Funds.

"It seems like everybody else has benefited from the economy reopening but the banks because you've seen very little loan growth" on account of the Paycheck Protection Program, Ellison said. "The pandemic has disproportionably hurt small businesses, and those are the customers of regional banks," he said.

As of June 30th, small banks held 15% of total banking industry loans but an outsized share of Paycheck Protection Program loans, holding 31%, according to the Federal Deposit Insurance Corp https://www.fdic.gov/analysis/quarterly-banking-profile/fdic-quarterly/2020-vol14-4/fdic-v14n4-3q2020-earlyrelease.pdf.

Overall, commercial loan growth fell 12% in September from a year earlier after bottoming out with a 16.3%% decline in annual loan growth in May, according to data from the Federal Reserve and Oppenheimer. Yet rising inventories at auto suppliers and retailers should bolster loan growth in the year ahead, said Chris Kotowski, an analyst at Oppenheimer.

"It seems likely to us that the next significant move is up — not down — for the simple reason that it can't possibly come down as much as it already has," said Chris Kotowski, an analyst at Oppenheimer.

Graphic: Has Commercial Loan Growth Bottomed Out? - https://graphics.reuters.com/MARKETS-LOANS/GROWTH/akvezamlmpr/chart.png

A healthy increase in new loans at regional banks would be a strong signal that supply chain issues are moderating, said Steven Comery, an analyst at Gabelli Funds.

"If clients can't get products to market because of the supply chain they aren't going to be borrowing to build their inventory," he said. "If we see signals that supply chain issues aren't going away then that's going to impact earnings estimates through 2023."

The four largest U.S. banks reported mixed loan growth when reporting their earnings results Oct. 14, with J&P Morgan said loans were up 5% compared to the prior year while Bank of America (NYSE:BAC) and Wells Fargo (NYSE:WFC) reported declines. [L4N2R93KV]

Companies including First Community (NASDAQ:FCCO) Bancshares Inc, First Midwest Bancorp (NASDAQ:FMBI) Inc, and Zions Bancorp are expected to report earnings on Monday, while Fifth Third BancorpO> and United Community Banks (NASDAQ:UCBI) Inc are among those expected to report on Tuesday.

On Wednesday, Oct. 13, shares of First Republic Bank (NYSE:FRC) gained 1.5% after the regional bank originated approximately $15 billion in new loans and reported that its average Paycheck Protection Program loan balance was down 39% over the quarter. Those gains in new loans will make it likely that the bank will raise its guidance in the coming quarters, noted Casey Haire, an analyst at Jefferies (NYSE:JEF).

Concerns over loan growth by regional banks comes at a time when the sector's shares are trading near record highs. Regional banks in the S&P 500 are up nearly 37% for the year to date and are just below the high they reached on Oct. 8, according to Refinitiv data.

Despite those gains, regional banks continue to look attractive based on valuations, Ellison said.

Regional banks in the S&P 500 trade at a forward price to earnings ratio of 13.5, well below the 21.2 of the broad S&P 500, according to Refinitiv data. Valuations will likely rise alongside the yield of the benchmark 10-year Treasury, which is used to set rates for loans including mortgages, Ellison said.

"Valuation is not a problem for future gains," he said.

Regional bank loan growth could hint at healthier supply chains
 

Related Articles

Pakistan receives $3 billion loan from Saudi Arabia
Pakistan receives $3 billion loan from Saudi Arabia By Reuters - Dec 04, 2021 5

By Syed Raza Hassan KARACHI, Pakistan (Reuters) - Pakistan on Saturday received a $3 billion loan from Saudi Arabia, the prime minister's finance adviser said, as part of an...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email