Major US banks post solid third quarter loan growth, but see more competition for deposits

By Pritam Biswas and Prakhar Srivastava

Oct 13 (Reuters) - Major US banks reported solid loan and deposit growth in the third quarter, but lenders are paying a premium to retain customer funds in a fiercely competitive, high-interest-rate environment.

JPMorgan Chase JPM.N, Citigroup C.N and Wells Fargo WFC.N all posted higher net interest incomes on Tuesday, defying concerns that soaring bond yields and elevated borrowing costs would stifle loan demand and trigger a flight in deposits.

"The consumer remains one of the economy's most important sources of resilience though higher prices continue to weigh on consumer sentiment," a Wells Fargo executive said in a post-earnings call.

Citigroup reported an 11% increase in average deposits and a 12% jump in average loans. Wells Fargo saw average deposits rise 10.7%, alongside an 11% jump in average loans buoyed by its consumer banking division. Meanwhile, JPMorgan, the largest US lender, reported a 4% rise in average deposits and a 2% increase in loans from a year ago.

Despite resilient metrics, banks face mounting funding pressures. As US Treasury yields hit record highs in the third quarter, customers sought better returns elsewhere, forcing lenders to raise deposit rates to prevent outflows and squeezing their margins.

This was exemplified by JPMorgan's deposit margin that fell to 2.78% in the third quarter from 2.79% in the year ago period and Wells Fargo's net interest margin on a taxable basis that slumped to 2.43% in the reported quarter from 2.61% in the year earlier.

"Loan and deposit growth continue to chug along, albeit maybe with some concern on deposits and how much is left over for the rest of the reporters," said Truist analyst Brian Foran.

Bank of America BAC.N is set to report its third quarter earnings on Wednesday.

POTENTIAL CREDIT LOSSES IN FOCUS

So far, analysts said there have been no significant cracks in overall bank credit quality, suggesting households have continued to manage their debt obligations.

A weakening labor market and rising living costs could pressure borrowers, especially if prolonged conflicts drive up prices for essential goods and squeeze discretionary spending.

Despite concerns that rising consumer spending is merely a reflection of inflation crowding out non-essential purchases, internal data does not show consumers shifting away from discretionary items, JPMorgan CFO Jeremy Barnum said in a post-earnings call.

US consumer prices rose 3.4% in the 12 months through August, matching July's increase, while a key measure of underlying inflation posted its largest monthly gain in four months.

Meanwhile, US job growth slowed more than expected in September. Sharp downward revisions to payrolls in previous months also added to uncertainty about the economic outlook and the potential strength of future loan demand.

Wells Fargo and Citigroup increased their provision for credit losses in the third quarter, a trend the other banks might soon follow in the current macroeconomic landscape.

In September, major US banks raised their prime lending rate following the Federal Reserve rate hike that raised borrowing costs for consumers and businesses.