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Lending Briefing: Big banks’ Q2 results and rising commercial loan volumes

  • Rising interest rates are a challenge for most financial market participants, but banks benefitted from this as lenders, helping to boost their Q2 bottom line.
  • Commercial loans grew by double-digits compared to last year, the strongest loan growth since the onset of the pandemic.
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Lending Briefing: Big banks’ Q2 results and rising commercial loan volumes

Net interest income boosts revenues in a tough quarter for US banks

It’s the second quarter earnings season, and the numbers are in at most of the top banks in the US. While most banks missed consensus estimates as they grappled with a challenging macro environment, their bottom line was rescued by a boost in net interest income. 

While rising interest rates are a challenge for most financial market participants, banks benefit from this as lenders, allowing for a wider spread between the rate they pay for deposits and the rate they charge for their loans. 

This spread is then reflected in the net interest income (NII) banks report on their income statement in their wealth management divisions, and the metric is expected to grow even further. Wells Fargo analyst Mike Mayo forecasted in a recent note that banks will report “the best NII growth in four decades over the next 6 quarters”.

However, higher interest rates don’t automatically translate into more revenues for banks. As borrowing becomes more expensive, banks lose on origination fees as lending volumes shrink. This is particularly relevant in the mortgage divisions for example, as well as investment banking. 

This quarter also revealed a tough time for financing corporate loans, with many markdowns on loans to finance deals. Rising interest rates were mainly to blame here as well, as investors shied away from leveraged loans. Bloomberg reported that the total Q2 losses reported by the big six US banks on corporate loans for sale stood at $1.32 billion.  

 


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