Bank profits rise; lending doesn’t keep pace

Tax cuts, deregulation and a buoyant economy were always expected to drive profits higher at most American banks in the latest quarter.

But would banks, taking their cue from rising economic optimism and a friendlier White House, significantly increase their lending? On Friday, earnings reports from four of the United States’ biggest banks showed scant evidence of such a revival.

JPMorgan Chase & Co., Citigroup Inc. and PNC all reported another quarter of healthy profits, most of which will end up in shareholders’ pockets. San Francisco’s Wells Fargo & Co., operating under regulatory constraints after a series of scandals, reported a decline in profit.

Overall, lending at the four banks grew only 2.1 percent in the second quarter from a year earlier, according to an analysis by the New York Times. That represents a slowdown from the 3 percent rise in the first quarter, and it is well below the 4.6 percent increase in loans that the four banks achieved in all of 2016, the last full year of the Obama administration.

A pickup in lending may yet occur. Looser regulations and the robust economy can take time to translate into higher lending. Tax cuts have increased cash flows at companies, perhaps reducing their need for loans. Higher interest rates may also be deterring borrowers. And banks may be holding back because they do not want to extend loans that have a higher chance of defaulting.

Even so, the banks have plenty of spare cash they could use right now to fuel higher lending if they wanted to. Instead, they have opted to buy back stock or increase dividends.

Wells Fargo’s loans declined by 1.4 percent. Analysts did not expect strong growth after the Federal Reserve this year required that the bank cap the growth of its balance sheet while it fixes the problems that led to a string of scandals.

But last month, Chief Financial Officer John Shrewsberry said the cap was not a significant factor. “It’s not a constraint on organic loan growth,” he said.

Loans at JPMorgan, the nation’s largest bank, had the fastest growth among the four. Its total loans grew by 4.4 percent.