Delinquent Loans Surge 6.4% Quarterly, Banks Face $31.04 Billion in Sour Debt

America’s largest banks are currently grappling with a significant increase in delinquent loans, as indicated by a recent report. The delinquency rate for commercial and industrial (C&I) loans has surged by approximately 6.4% from the previous quarter and 19.8% year over year, reaching a total of $31.04 billion. This surge has resulted in a delinquency ratio of 1.31%, signaling a notable rise in sour debt.

Major financial institutions, including JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, and Goldman Sachs, are collectively burdened with $11.8582 billion in delinquent C&I loans. This increase in delinquent loans is occurring at a time when the overall C&I loan balance across US banks has decreased by 5.2% quarter over quarter and 4.3% year over year, falling to $2.371 trillion. This decline is partially due to a classification change that excludes margin loans from the C&I category.

Despite the reduction in total loans, the increase in delinquencies suggests growing stress within the commercial sector. Bank executives have noted a muted demand for lending and cautious behavior among borrowers. JPMorgan Chase COO Jennifer Piepszak highlighted that much of the recent activity has been focused on refinancing rather than new loan growth, citing a “wait-and-see” approach among businesses. This cautious stance reflects the economic uncertainty and the need for businesses to assess their financial positions carefully before taking on new debt.

U.S. Bancorp CFO John Stern acknowledged “pockets of growth” in corporate and middle-market lending but emphasized that this growth remains inconsistent. Stern suggested that there is potential for more economic clarity in the second half of the year, which could influence lending behavior and demand. The inconsistent growth and cautious approach among borrowers indicate that the commercial sector is navigating through a period of uncertainty, with businesses and banks alike adopting a more conservative stance.

The rise in delinquent loans and the cautious lending environment highlight the challenges faced by the banking sector in the current economic climate. As banks grapple with the surge in sour debt, they must also address the underlying factors contributing to the increase in delinquencies. This includes assessing the financial health of borrowers, implementing risk management strategies, and adapting to the changing economic landscape. The ability of banks to navigate these challenges will be crucial in determining their resilience and long-term sustainability in the face of economic uncertainty.