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US Banks To Allow More Debt By Opening To Corporate Borrowers

Corporate borrowers have now become the biggest borrowers from US banks based on recent industry data from the Federal Reserve. Many bankers say that this is a good sign and this means that more US businesses are finally more comfortable taking on more debt.

In a statement, Bill Demchak, chief executive and chairman of PNC Financial Services, said

You saw a decent pick up in March and we're seeing that in our pipeline. That should set us up well for the rest of the year.

The data from the Federal Reserve shows that both commercial and industrial loan balances increased by 9.3% last month which was a record total of $2.13 trillion. That is the highest that loan balances have been since the 2016 election. There have been only two other months when the loan growth rate has been higher than 3%.

Market analysts could see from previous low loan rates that a lot of US businesses were nervous about the true condition of the economy and were reluctant to take out a loan. These low commercial loan volumes was one of the biggest concerns that investors in US banks were worried about.

Some analysts have offered an explanation for the weak corporate lending performance. They think that instead of approaching banks for money, businesses have been seeking investment from capital markets. However, another reason for US businesses not pursuing loans was due to the uncertainty about the current administration.

US Banks Confident About Future Growth

Banks have also released their quarterly earnings and have a positive outlook, especially after the passage of the tax reform bill. Several bankers have expressed optimism about the future, with many executives confident that their bank will witness a growth spurt in the coming months.

Bank of America (BOA) is expected to post high earnings due to the pick-up in loan demand. Analysts expect BOA to register a 40% increase in the first quarter of 2018 compared to the first quarter in 2017. They expect BOA’s net income to touch $6.16 billion. Despite weakness in other areas of the market, the lending growth has balanced things out. The problem that US banks have had to face is over higher interest rates, which has reduced the chance of refinancing of mortgages. The hardest hit by this move is Wells Fargo, which reported a 24% decrease in income from mortgage banking.

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