The major banks in the country announced their profits this week and overall their profits have increased, which is huge. This is partly because they are setting aside less money to cover bad debts than at the start of the pandemic.
That doesn’t necessarily mean they’re lending more money, though.
There have not been many requests for bank loans this year. Companies have been reluctant to expand, said Nate Tobik of CompleteBankData. Many of those who got government assistance.
“And they were able to grow with that money, government grants, instead of needing credit from a bank,” Tobik said.
Then there are people like you and me — who got relief checks, student loan deferrals and extra unemployment benefits. People used that money to pay their credit card bills, according to banking analyst Gerard Cassidy of RBC Capital Markets.
“Because these are expensive sales,” he said. “The average return tends to hover around 12% to 14%, with some interest rates as high as 25%.”
This week, bank executives said borrowing could resume. People are spending more and many government assistance programs have ended.
In the meantime, businesses are struggling to stock their shelves, given ongoing supply chain issues. And if these were attenuated?
“This will drive demand for commercial loans as these stocks are rebuilt to normal levels,” Cassidy said.
Then there are home loans. “The volume is well above 2020, and we still have a quarter to go,” said Peter Alden, president and CEO of Bay State Savings Bank in Massachusetts.
Residential loan demand has remained strong this year, Alden said. The bank is seeing an increase in demand for home equity lines of credit and new mortgages.
“A number of people, due to rising property values, have sold their properties. So that created opportunities for new loan relationships,” he said.
Alden added that he will keep an eye on delinquency rates as government assistance programs end.