Banks See Lukewarm Lending in Spite of Wall Street Rally

Steady-to-declining interest rates. Inflation under 3%. A relaxed attitude to regulation in D.C.

As the Wall Street Journal (WSJ) points out in a report Friday (Jan. 31), these are all factors that suggest the banking sector should be optimistic. However, the report adds, many lenders still have lukewarm expectations for a big part of their business: loaning money.

Among those banks is PNC, which said recently it could foresee no loan growth in its net interest income projection for the first quarter of the year.

“We’ve kind of gotten tired of trying to pick that point in time where things go up, and just be conservative about it,” PNC Chief Executive Officer William Demchak told analysts during the bank’s recent earnings call.

According to the WSJ, many bankers say they hope to see loan growth as the year goes on, pointing to factors like optimism among their clients. While Demchak said PNC was adding customers, these clients were using less credit.

A number of bankers said they hoped to see growth later this year, citing optimism among clients and other indicators. Demchak noted that PNC was gaining clients, but clients were also using less of their available credit lines.

Commercial bank loans grew by around 2.7% from the end of 2023 to the end of last year, the report said, citing Federal Reserve data. That’s only somewhat faster than the previous year’s 2.3% rise. Loan growth hasn’t been this slow since the wake of the 2008 financial crisis.

In other news from the lending world, PYMNTS CEO Karen Webster spoke earlier this week with ValidiFI CEO John Gordon about some of the “blind spots” lenders deal with when extending credit to customers.

For example, banks use FICO scores, which are in many cases valuable but can fall short in terms of illustrating applicants’ ability to pay back their loans. Gordon said the average U.S. FICO score is 715, a figure that’s been trending upward for the last decade.

“But you’d be hard-pressed to believe that the consumer is in better shape based on Consumer Price Indexes. While you need a FICO score, we believe there’s more to know,” he said, adding that FICO might be best seen as a lagging indicator of creditworthiness and ability to repay.

“But bank data and the consumers’ bank relationship, with all the information that’s presented, can fill in the gaps,” Gordon said. “What we have found is that if you’re just looking at accounts and routing numbers and not looking at the marriage between the account, the routing number and the consumer who’s applying with it — well, then, you’re missing the opportunity to better quantify that consumer on a number of different levels.”