US borrowers get quick relief as Fed cuts rates
Banks lower prime lending rates after Fed cut
Analysts see potential for lower monthly payments or refinancing
Skepticism remains about loan growth fully offsetting lower net interest income
Updates with prime rate cuts in paragraphs 1-2, table after last paragraph
By Nupur Anand and Saeed Azhar
NEW YORK, Sept 17 (Reuters) -U.S. consumers got an immediate reprieve on borrowing costs from banks after the Federal Reserve cut interest rates on Wednesday for the first time in more than four years.
Lenders tightened lending standards last year as the commercial real estate market deteriorated and investors became broadly concerned about the potential for a U.S. recession. Echoing the Fed's move, banks including JPMorgan Chase JPM.N, Bank of America BAC.N and Wells Fargo WFC.N reduced their prime rates.
"Borrowing rates are more competitive than deposit rates and they are more likely to move with the market," said Jay Hatfield, CEO of Infrastructure Capital Advisors. "We would expect both deposit and lending rates to come down pretty quickly," as banks compete to attract deposits and seek profits from loans, he said.
U.S. lenders' net charge-off rates for credit cards, or the amount banks did not expect to collect on the loans, rose to 4.82% in the second quarter, the highest since 2011.
But banking executives have noted that U.S. consumers' late payments on credit cards and other loans are starting to level off after rising earlier in the year.
“Today's reduction in interest rates could ultimately allow for consumers to see lower monthly payments" or refinance their higher-interest debt, said Michele Raneri, head of U.S. research and consulting at credit reporting bureau TransUnion in Chicago.
"Lenders have begun exercising more discretion when it comes to whom they are extending credit, preferring less-risky borrowers," she said. "It remains to be seen whether this interest-rate reduction will see lenders once again offering credit to a larger segment of the consumer population."
Silvio Tavares, CEO of VantageScore, a credit-score modeling company, called the cut "a strong and positive step." But its effects will be gradual, with more cuts needed to help everyday finances, he added.
"While consumers overall remain credit-healthy, many are facing mounting financial challenges including rising delinquency rates and the highest credit-card balances we've seen in more than four years," Tavares said.
Banks are positioned for a variety of interest-rate scenarios and are unlikely to take on greater interest-rate risks after the Fed move, Fitch Ratings analysts wrote in a note.
An S&P 500 index of bank stocks closed slightly lower.
"The market's assuming that banks are going to be performing well into the future, and that rate cuts are going to be helping them," said David Wagner, a portfolio manager at Aptus Capital Advisors, which owns bank shares.
"But I'm kind of skeptical that the amount of loan growth that's going to come to the market is going to fully subsidize the lowering of the net interest income," Wagner said, referring to the difference between what banks make on loans and pay out on deposits.
Below is a table of rate changes from U.S. lenders:
Banks | New Prime Lending Rates | Previous |
Bank of America | 8.0% | 8.5% |
JPMorgan Chase | 8.0% | 8.5% |
M&T Bank | 8.0% | 8.5% |
Regions Bank | 8.0% | 8.5% |
Truist Financial | 8.0% | 8.5% |
Wells Fargo | 8.0% | 8.5% |
Reporting by Nupur Anand and Saeed Azhar in New York, additional reporting by Pritam Biswas; Writing by Lananh Nguyen; Editing by Rod Nickel
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