In a sign of strength for the economy in the U.S. and welcome news for banks, business loans saw an uptick in the second quarter.
The Wall Street Journal, citing preliminary second-quarter Federal Reserve data, reported it looks like the rate of business loans in the second quarter increased to 5.5% as of the end of June, up from less than 1 percent around the end of 2017. That marks a turnaround for the business loan market, which has been dealing with a protracted decline for around two years now. The increase in business loans, according to the Wall Street Journal, is due to increased confidence on the part of corporate America. While banks are happy about the newfound business, there is one potential wrench in the growth: increased trade tensions between China and the U.S. When the Federal Reserve met in June, the Fed said it was concerned about the impact of tariffs and trade restrictions on the future investment activity in the U.S. The Fed said in some districts plans for capital spending have been scaled back or put on hold because of the uncertainty surrounding trade policy.
Nevertheless, the increase in business lending could help the banks show stronger second-quarter earnings when they start reporting later in July. Profits from lending is a big piece of the banks’ earnings and growth. According to the WSJ, it’s difficult to pinpoint the exact reason that business lending has increased — but some economists pointed to an upbeat outlook on the part of the companies for the increased borrowing. Meanwhile, some bankers point to midsize businesses’ plans to expand via acquisitions for the increase in borrowing. “Businesses no longer have an excuse not to borrow. Whether it was the election, deregulation or taxes — now we have the answer to all three,” said Chris Marinac, director of research at FIG Partners, in an interview with the WSJ. “They have every reason in the world to take on debt and expand.” The Fed data, noted the report, showed small and midsize banks are seeing the fastest growth on the business loan side of the market, with many of them catering to companies outside of large corporations.