Big Bank Lending Income Projected to Hit Two-Year Low

America’s biggest banks are reportedly ready to announce the lowest lending income in two years.

J.P. Morgan Chase, Bank of America, Citigroup and Wells Fargo will release their earnings in the weeks ahead, and are expected to list a combined net interest income of a little less than $62 billion, the Financial Times (FT) reported Tuesday (Oct. 8).

That’s down nearly 5% from the same quarter in 2023, the FT adds.

As the report notes, net interest income — which is the difference between what lenders pay on deposits and what they take in from assets such as loans — soared as the Federal Reserve hiked interest rates over the last two years, leading banks to raise rates for savers at a slower pace than for borrowers. 

However, this year has seen that boom fade, as banks slowly hiked rates for savers, putting a crimp into profit margins. Analysts expect the net interest income for the four biggest American banks to be at its lowest since the end of 2022, with the total third-quarter net profits down by an average of 15% year over year.

The banks’ earnings reports will be a harbinger of “net interest income going forward into year end and into 2025,” Saul Martinez, a banking analyst at HSBC, told the FT.

In other banking news, PYMNTS wrote last week about the competition between big banks and neobanks to serve households earning $50,000 per year or less.

“Digital banks garnered a 47% share of new account openings in the first half of 2023, up from 36% in 2020,” that report noted. “Traditional banks’ strategy to capture some share of new account openings again rests on building out a physical footprint that has been extant for decades — this time building branches where they’d not been before — opening up the competition for lower-income households on a new front.”

Also last week, PYMNTS examined the Federal Deposit Insurance Corp. (FDIC)’s latest Small Business Lending Survey, which found that a high-touch approach and in-person visits to the branches are “key conduits” for extending credit to small businesses.

The survey also found that banks are competing more fully with credit unions and nonbank FinTechs for small business customers, with many also working with FinTechs.

Those findings follow PYMNTS Intelligence’s own reporting that 65% of banks and credit unions have launched at least one FinTech partnership, with 75% of banks seeing FinTech collaborations as crucial to meeting customer expectations.