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 Commercial borrowers are using two or three percentage points more
of their credit lines than they were a year ago, reaching levels not
seen since before the financial crisis was at its height in 2009,
senior officials at a number of major banks said in interviews and
on conference calls this week.
Companies are using the funds for a variety of things, from boosting
manufacturing capacity to investing in new businesses and building
inventory as customer demand increases.
"Confidence is back," said Laura Oberst, an executive vice president
at Wells Fargo & Co who oversees commercial banking for the central
U.S. region. "It's fragile still, but stronger than I've seen it
since the meltdown of 2008.”
A Wells Fargo spokeswoman could not immediately provide a bank-wide
utilization rate for commercial and industrial borrowers, but said
it has gone up a few percentage points over the past year.
Bank of America Corp Chief Financial Officer Bruce Thompson said
commercial and industrial borrowers were using "in the high 30s"
percent of their credit lines last quarter, the highest in six years
and up from a range "in the very low 30s" during the recession. The
bank declined to comment on where levels stood a year ago.
The increased usage represented about $1 billion worth of loan
growth over the past year in Bank of America's commercial lending
business, Thompson told reporters on a conference call on Wednesday.
While companies in distress – such as energy companies hit by the
plunging oil price - often use lines of credit for emergency
funding, that was not where most of the demand for Bank of America
funds was coming from, Thompson said. Bank of America is the second
largest U.S. bank by assets.
At JPMorgan Chase & Co, the largest U.S. bank, corporate borrowers
were using 34 percent of credit the bank extended to them last
quarter, up 2.8 percentage points from a year earlier and 4
percentage points higher than in all of 2013. Chief Financial
Officer Marianne Lake said it was the highest utilization rate since
2009.
Even banks that have not seen customers using more of their credit
lines, such as USBancorp, are seeing some encouraging signs.
Companies have asked the Minneapolis-based regional bank to increase
their lines of credit, and USBancorp's outstanding commitments for
loans have grown by 12 percent over the last year, CFO Kathy Rogers
told Reuters in an interview. That increase usually points to rising
confidence that they will need more funds, she added.
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UNEVEN EXPANSION
Overall U.S. economic growth, and corporate spending growth, has
been patchy since the 2007-2009 financial crisis.
In 2014, for example, expenditure on equipment grew over the whole
year by 6.4 percent, according to gross domestic product data. But
on a quarterly basis, annualized and adjusted for seasonal
differences, changes in expenditure swung wildly - ranged from a
contraction of 1 percent to growth of 11.2 percent.
For banks, any increased demand for the credit lines, also known as
"revolvers," is a positive. Lenders charge companies relatively low
fees on unused lines.
"As they use those revolvers more, we are getting paid more for
those commitments that are already out there," Bank of America’s
Thompson said.
In the near term, though, there is a risk that competition among
lenders will drive down borrowing rates further, pressuring bank
profits even as loan books expand.
"We're chasing our tail because there's a lot more competition,"
said Wells Fargo's Oberst.
Credit lines usage is one factor that influence bank earnings, but
there are many others. Bank earnings have been mixed this week, with
JPMorgan posting a big increase in quarterly earnings thanks to
higher trading revenues, while Wells Fargo, PNC Financial Services,
and other banks have posted weaker results thanks in part to falling
medium- and long-term lending rates.
(Reporting by David Henry and Lauren Tara LaCapra in New York;
Editing by Dan Wilchins and Martin Howell)
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