As lending volume remains robust, US regional banks, together with their larger counterparts, signal strong economic resilience.

Pritam Biswas/Arasu Kannagi Basil/Prakhar Srivastava

Reuters, October 16 - This week, several U.S. regional banks released strong third-quarter earnings reports, mainly due to robust corporate loan demand, further indicating that the economy remains resilient despite rising borrowing costs.

Earlier this week, major U.S. banks such as JPMorgan (JPM.N), Bank of America (BAC.N), Wells Fargo (WFC.N), and Citigroup (C.N) also reported increases in loan balances, although weakness in capital markets impacted their investment banking revenues.

PNC Financial Group (PNC.N) CEO William Demchak said that people have come to regard global uncertainty as the "new normal" and continue to carry on with business operations.

"The clouds persist, but the economy is still strong. People continue to inject money into the economy," Demchak added.

In the third quarter, PNC led regional banks in loan growth with an increase of 14.2%, followed by U.S. Bancorp (USB.N) at 8%, M&T Bank (MTB.N) at 5.5%, and Citizens Financial (CFG.N) at 5.29%.

Such robust lending activity runs counter to growing market expectations—previously, the consensus was that persistent high inflation, driven by the Iran war and the Federal Reserve's September rate hike, might suppress corporate capital spending and reduce borrowing willingness.

Executives at several regional banks said that loan applications remain strong and that they have not yet seen any signs of softening demand.

Citizens Financial noted that as the bank enters the fourth quarter, loan demand has actually begun to pick up again in recent weeks.

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AI as a catalyst?

During the analyst Q&A session after the earnings releases, when pressed by analysts, bank executives said they are trying to understand how much of the loan growth is related to large-scale artificial intelligence spending.

"The entire AI ecosystem buildout is in full swing. It's a very powerful driver that cascades into many supply-side ecosystems," said Citizens Financial CEO Bruce Van Saun.

"Even with rising interest rates, companies remain eager to deploy compute power; their desire is unwavering," he added.

Although PNC Bank does not have a large-scale data center financing business, it said the boom in AI spending has impacted associated sectors such as heavy equipment, transportation, and energy.

"If AI-related capital spending slows across the board, even though we do not lend directly to that sector, do we think it would slow loan growth? Yes, I do think so," said Demchak of PNC.

Some regional banks downplayed reliance on AI and emphasized broad-based growth in commercial and industrial lending.

John Stern, CFO of U.S. Bancorp, noted that even in non-AI-related sectors, loan growth remains strong, highlighting areas such as retail, dining, and insurance.

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