The country’s big banks will report their latest quarterly results this coming week. Analysts expect that profits will beat expectations, in large part because banks’ trading and investment banking desks have been pulling in more revenue.
But the old-fashioned business of taking in deposits and making loans has been a mixed bag lately.
Demand for loans has been fairly steady at Sunrise Banks in Minnesota. CEO David Reiling said to just look at mortgage demand.
While it’s not going through the roof, “deals are being done, and people are buying homes, and so they’re getting a little bit more accustomed to this interest rate environment, and the valuation of homes,” he said.
There are other types of lending that are slowing down, Reiling said — including commercial real estate and small business loans.
“The small business, I think, is being a little bit more conservative as to purchases of equipment and more infrastructure,” he said.
A lot of that hesitancy is because borrowers are uncertain about the economy, Reiling noted. But a few of his commercial real estate borrowers are actually having trouble paying back their loans.
“They might have lost a tenant, or something’s happening with [their] interest rate on their loan went up from an adjustable standpoint. And now they’re a bit stressed,” he said.
As a result, Reiling said the bank is being more careful about the new loans it makes. “Just a little bit more due diligence and maybe a little sharper pencil in terms of looking at deals.”
That kind of caution is common at banks across the country. Lenders are still unsure how the Trump administration’s policies will play out across industries, according to David Schiff, senior managing director at FTI Consulting.
For instance, companies in the renewable energy and health care sectors might have a tougher time thanks, in part, to federal cutbacks.
“And so there’s just concern around the ability of some of those borrowers to repay,” Schiff said. “And that’s causing the banks to think about — although not necessarily enact yet — tighter underwriting standards.”
It also depends on where you are, Schiff said, and there are regions of the country where demand for loans is up. Take the South, for instance.
“Everything from the Atlanta metro area, going into Florida, going into North Carolina, South Carolina,” said Dominik Mjartan, CEO of American Pride Bank, which serves borrowers in those states.
The South is continuing to see in-migration and, therefore, economic growth. “And with that, of course, comes demand for services, for construction, hospitality, for all kinds of other businesses that are related.
That said, the bank has been preparing for an economic slowdown.
Mjartan said his bank is stress-testing its portfolio more rigorously — checking to see what would happen if its borrowers’ incomes were to decline — and the strong demand he’s seeing for loans is allowing the bank to become more selective.
“We don’t have to go geographically outside of our market, or we don’t have to go into new types of industry or new types of product,” he said.
That way, Mjartan added, the loans the bank does make are solid.
