U.S. banks are reporting that companies are tapping more of their credit lines to fund hiring and expand their businesses, a promising sign for the economy.
Commercial borrowers are using two or three percentage points more of their credit lines than they were a year ago, reaching levels not seen since before the financial crisis was at its height in 2009, senior officials at a number of major banks said in interviews and on conference calls this week.
Companies are using the funds for a variety of things, from boosting manufacturing capacity to investing in new businesses and building inventory as customer demand increases.
"Confidence is back," said Laura Oberst, an executive vice president at Wells Fargo & Co who oversees commercial banking for the central U.S. region. "It's fragile still, but stronger than I've seen it since the meltdown of 2008.”
A Wells Fargo spokeswoman could not immediately provide a bank-wide utilization rate for commercial and industrial borrowers, but said it has gone up a few percentage points over the past year.
Bank of America Corp Chief Financial Officer Bruce Thompson said commercial and industrial borrowers were using "in the high 30s" percent of their credit lines last quarter, the highest in six years and up from a range "in the very low 30s" during the recession. The bank declined to comment on where levels stood a year ago.
The increased usage represented about $1 billion worth of loan growth over the past year in Bank of America's commercial lending business, Thompson told reporters on a conference call on Wednesday.
While companies in distress – such as energy companies hit by the plunging oil price - often use lines of credit for emergency funding, that was not where most of the demand for Bank of America funds was coming from, Thompson said. Bank of America is the second largest U.S. bank by assets.
At JPMorgan Chase & Co, the largest U.S. bank, corporate borrowers were using 34 percent of credit the bank extended to them last quarter, up 2.8 percentage points from a year earlier and 4 percentage points higher than in all of 2013. Chief Financial Officer Marianne Lake said it was the highest utilization rate since 2009.
Even banks that have not seen customers using more of their credit lines, such as USBancorp, are seeing some encouraging signs.
Companies have asked the Minneapolis-based regional bank to increase their lines of credit, and USBancorp's outstanding commitments for loans have grown by 12 percent over the last year, CFO Kathy Rogers told Reuters in an interview. That increase usually points to rising confidence that they will need more funds, she added.
Overall U.S. economic growth, and corporate spending growth, has been patchy since the 2007-2009 financial crisis.
In 2014, for example, expenditure on equipment grew over the whole year by 6.4 percent, according to gross domestic product data. But on a quarterly basis, annualized and adjusted for seasonal differences, changes in expenditure swung wildly - ranged from a contraction of 1 percent to growth of 11.2 percent.
For banks, any increased demand for the credit lines, also known as "revolvers," is a positive. Lenders charge companies relatively low fees on unused lines.
"As they use those revolvers more, we are getting paid more for those commitments that are already out there," Bank of America’s Thompson said.
In the near term, though, there is a risk that competition among lenders will drive down borrowing rates further, pressuring bank profits even as loan books expand.
"We're chasing our tail because there's a lot more competition," said Wells Fargo's Oberst.
Credit lines usage is one factor that influence bank earnings, but there are many others. Bank earnings have been mixed this week, with JPMorgan posting a big increase in quarterly earnings thanks to higher trading revenues, while Wells Fargo, PNC Financial Services, and other banks have posted weaker results thanks in part to falling medium- and long-term lending rates.
(Reporting by David Henry and Lauren Tara LaCapra in New York; Editing by Dan Wilchins and Martin Howell)