Total Loans at Banks Grew 7.6% in the First Week of June
(Continued from Prior Part)
A key consumer loan segment
Auto loans at commercial banks grew to $367 billion, according to Federal Reserve data released on June 12, 2015. A little over one-third of all motor vehicle loans are owned by commercial banks. The auto loans at commercial banks grew by 9% in 2014.
The loans grew at a rate slightly greater than 10% in 2013. The rapid growth will benefit those banks with significant auto loan portfolios. The above graph shows the weekly auto loan growth at all of the commercial banks.
Ally Financial (ALLY) and Wells Fargo (WFC) are the biggest auto lenders. They’re followed by J.P. Morgan (JPM), Capital One Financial (COF), and Bank of America (BAC), respectively. Together, these five banks accounted for ~57% of the auto loans held by commercial banks at the end of 2014.
Wells Fargo (WFC) forms ~8.7% of the Financial Select Sector SPDR Fund (XLF).
Is the rate of growth risky?
Recently, there has been some concern about the rapid pace of auto loan growth. Delinquencies could rise as banks loosen underwriting standards for auto loans, partially fueling growth.
While there could be an impact on individual banks, the overall effect isn’t expected to be huge. That’s because auto loans account for less than 5% of total outstanding bank loans. Also, the delinquency and charge-off rates at all commercial banks have declined for the last several quarters in the “other consumer loans” category, which primarily includes auto and student loans.
Investors should watch subprime lending
Banks that have greater exposure to subprime loans might see a greater number of delinquencies. In the January 2015 “Senior Loan Officer Opinion Survey,” around one-third of the banks that originated or held subprime auto loans anticipated some deterioration in the performance of such loans in 2015.
Most banks expect delinquency and charge-off rates on prime auto to remain around their current levels in 2015.
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