Regional bank loan growth could hint at healthier supply chains
Send a link to a friend
[October 15, 2021] By
David Randall
NEW YORK (Reuters) - If regional banks show signs
of accelerating loan growth when they report earnings in the week ahead,
it could signal an easing of the supply chain bottlenecks that have
weighed down the U.S. economic recovery from the pandemic, analysts and
investors said.
Overall, small banks accounted for 63% of the approximately $520 billion
in loans through the federal Paycheck Protection Program launched in
response to the pandemic. The program allowed small businesses to take
loans that either could be forgiven or would have a 1% interest rate,
according to the U.S. Small Business Administration
https://www.sba.gov/sites/
default/files/2020-07/PPP%20Results%20-%20Sunday%20FINAL.pdf.
Increasing demands for new loans at higher interest rates could signal
that small businesses are securing inventory and expanding, said Dave
Ellison, a portfolio manager at Hennessy Funds.
"It seems like everybody else has benefited from the economy reopening
but the banks because you've seen very little loan growth" on account of
the Paycheck Protection Program, Ellison said. "The pandemic has
disproportionably hurt small businesses, and those are the customers of
regional banks," he said.
![](http://archives.lincolndailynews.com/2021/Oct/15/images/ads/current/safety-tip-daily-3.png)
As of June 30th, small banks held 15% of total banking industry loans
but an outsized share of Paycheck Protection Program loans, holding 31%,
according to the Federal Deposit Insurance Corp
https://www.fdic.gov/analysis/quarterly-banking-profile/fdic-quarterly/2020-vol14-4/fdic-v14n4-3q2020-earlyrelease.pdf.
Overall, commercial loan growth fell 12% in September from a year
earlier after bottoming out with a 16.3%% decline in annual loan growth
in May, according to data from the Federal Reserve and Oppenheimer. Yet
rising inventories at auto suppliers and retailers should bolster loan
growth in the year ahead, said Chris Kotowski, an analyst at
Oppenheimer.
"It seems likely to us that the next significant move is up — not down —
for the simple reason that it can't possibly come down as much as it
already has," said Chris Kotowski, an analyst at Oppenheimer.
Graphic: Has Commercial Loan Growth Bottomed Out? -
https://graphics.reuters.com/MARKETS-LOANS/GROWTH/akvezamlmpr/
chart.png
A healthy increase in new loans at regional banks would be a strong
signal that supply chain issues are moderating, said Steven Comery, an
analyst at Gabelli Funds.
[to top of second column] |
![](../images/101521pics/2021-10-15T050331Z_1_LYNXMPEH9E05B_RTROPTP_4_USA-STOCKS-WEEKAHEAD_small.JPG)
A street sign for Wall
Street is seen outside the New York Stock Exchange (NYSE) in New
York City, New York, U.S., July 19, 2021. REUTERS/Andrew Kelly/File
Photo
![](http://archives.lincolndailynews.com/2021/Oct/15/images/ads/current/graue_lda_PPP_2021.png)
"If clients can't get products to market because of the supply chain they aren't
going to be borrowing to build their inventory," he said. "If we see signals
that supply chain issues aren't going away then that's going to impact earnings
estimates through 2023."
The four largest U.S. banks reported mixed loan growth when reporting their
earnings results Oct. 14, with J&P Morgan said loans were up 5% compared to the
prior year while Bank of America and Wells Fargo reported declines. [L4N2R93KV]
Companies including First Community Bancshares Inc, First Midwest Bancorp Inc,
and Zions Bancorp are expected to report earnings on Monday, while Fifth Third
BancorpO> and United Community Banks Inc are among those expected to report on
Tuesday.
On Wednesday, Oct. 13, shares of First Republic Bank gained 1.5% after the
regional bank originated approximately $15 billion in new loans and reported
that its average Paycheck Protection Program loan balance was down 39% over the
quarter. Those gains in new loans will make it likely that the bank will raise
its guidance in the coming quarters, noted Casey Haire, an analyst at Jefferies.
Concerns over loan growth by regional banks comes at a time when the sector's
shares are trading near record highs. Regional banks in the S&P 500 are up
nearly 37% for the year to date and are just below the high they reached on Oct.
8, according to Refinitiv data.
Despite those gains, regional banks continue to look attractive based on
valuations, Ellison said.
Regional banks in the S&P 500 trade at a forward price to earnings ratio of
13.5, well below the 21.2 of the broad S&P 500, according to Refinitiv data.
Valuations will likely rise alongside the yield of the benchmark 10-year
Treasury, which is used to set rates for loans including mortgages, Ellison
said.
![](http://archives.lincolndailynews.com/2021/Oct/15/images/ads/current/charrons_bch041713.png)
"Valuation is not a problem for future gains," he said.
(Reporting by David Randall; editing by Megan Davies and David Gregorio)
[© 2021 Thomson Reuters. All rights
reserved.] Copyright 2021 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content. |