The country’s major banks reported profits this week, and overall their profits have risen – a lot. This is in part because they are setting aside less money to cover bad debts than they were earlier in the pandemic.
That doesn’t necessarily mean they’re loaning out more money, however.
There hasn’t been a lot of demand for bank loans this year. Companies were hesitant to expand, said Nate Tobik of CompleteBankData. Many of them got help from the government.
“And they were able to grow with that money, the government grants, instead of needing credit from a bank,” Tobik said.
Then there are people like you and me – who got relief checks, student loan deferrals, and extra unemployment benefits. People used that money to pay their credit card bills, according to bank analyst Gerard Cassidy of RBC Capital Markets.
“Because these are expensive sales,” he said. “The average yield tends to hover around 12% to 14%, with some interest rates going as high as 25%.”
This week, bank executives said borrowing could resume. People are spending more and many government assistance programs have ended.
In the meantime, companies are struggling to stock their shelves, given lingering supply chain issues. What if they relax?
“This will stimulate demand for commercial loans as these stocks are replenished to normal levels,” Cassidy said.
Then there are home loans. “The volume is way over 2020, and we still have a quarter to go,” said Peter Alden, president and CEO of Bay State Savings Bank in Massachusetts.
Demand for residential loans has remained strong this year, Alden said. The bank is seeing increased demand for home equity lines of credit and new mortgages.
“A number of people, due to the rise in real estate values, have sold their properties. So this created opportunities for new lending relationships, ”he said.
Alden added that he would keep an eye on delinquency rates as government assistance programs end.