Photographer: John Taggart/Bloomberg

Is Loan Growth Set to Speed Up or Is It Slowing? Analysts Differ

  • Morgan Stanley’s Graseck expects faster C&I loan growth in 2H
  • Others look at the same Fed survey and see softer C&I demand

Sometimes, even the driest of data can act like a Rorschach test, with some seeing beauty where others see darkness. That’s happening now with results from the Federal Reserve’s July senior loan officer survey about bank loans over the past 3 months, sent to dozens of domestic banks.

For Morgan Stanley’s Betsy Graseck, the survey points to accelerating commercial loan growth in the second half of the year, and marks the fifth straight quarter that banks relaxed lending standards. "This is important," Graseck wrote this week, as the survey suggests commercial and industrial (C&I) "loan growth acceleration should be around the corner."

Others aren’t convinced.

Susquehanna’s Jack Micenko says the survey shows weaker commercial and industrial demand, along with weaker commercial real estate demand. That runs counter to comments made by optimistic bank executives, and may hurt stocks, he said in an email to Bloomberg.

"We need to see some growth in loans soon to support these valuations," Micenko warned this week.

Analysts look to the Fed data to divine clues about whether lending will expand, or whether fears of slower lending will be realized. Bank stocks have outperformed since President Donald Trump’s election amid hopes that financial companies will benefit from the new administration’s efforts to boost economic growth, ease regulation and cut taxes. The KBW Bank Index has climbed 28 percent since Nov. 8 while the S&P 500 gained 16 percent.

‘Mixed’ Results

The Fed, for its part, said the survey responses show "a moderate net share of domestic banks reported that demand for commercial and industrial loans from large and middle-market firms weakened." The central bank said reasons for the weaker demand include shifts in customer borrowing to non-bank sources and decreases in customers’ needs to finance investments and mergers.

The Fed’s monthly data is drawn from responses by 76 domestic banks and 22 U.S. branches and agencies of foreign banks.

Bill Carcache, an analyst at Nomura Instinet, said July’s survey results were mixed, pointing to "relatively stable" loan demand. He expects commercial real estate loan growth to continue to slow next quarter, along with softer demand for auto loans as banks continue to tighten their lending standards.

Over at Barclays, Jason Goldberg wrote that the survey showed loan demand generally softened during the quarter. Banks have made it more difficult for borrowers to get loans, he said, which could foreshadow some deterioration in commercial real estate, auto and card credit quality.

The survey reinforces Bloomberg Intelligence senior U.S. economist Yelena Shulyatyeva’s take on the economy across the board. Lower demand for commercial loans is "a warning sign," but may be coming amid policy uncertainty in Washington.

"The economy is doing OK, not great, and so is the lending," she said.

— With assistance by Jennifer Surane

    Before it's here, it's on the Bloomberg Terminal.