July 21 (Reuters) – Comerica (CMA.N) and Huntington Bancshares (HBAN.O) on Friday significantly reduced their forecasts for interest income growth in 2023, becoming the latest U.S. banks to express concerns about weakening loan demand and rising deposit costs. The Federal Reserve’s aggressive monetary tightening, the most rapid since the 1980s, boosted net interest income for lenders in the second quarter. However, the high interest rates are causing some customers to reconsider taking out loans and making large purchases. NII, which represents the difference between the income banks generate from loans and the amount they pay out on deposits, increased for almost all banks reporting earnings for the April-June quarter. Comerica and Huntington also exceeded profit expectations. Nevertheless, the high interest rate environment is compelling lenders to raise deposit rates in order to prevent clients’ funds from moving to higher-yielding alternatives like money market funds. This will have a negative impact on NII in the future, according to analysts. Regions Financial, a mid-sized lender that also released its results on Friday, stated that its deposit costs had risen in the second quarter. Comerica lowered its 2023 NII growth forecast to a range of 1% to 2% from the previously estimated 6% to 7%, causing its shares to decline by 3.8%. Huntington now expects its NII to increase by 3% to 5% this year, compared to the previous expectation of 6% to 9% growth. Regions Financial maintained its 2023 NII forecast, but its stock fell by 3.4%.
“We still think there’s a fair amount of caution in banks and there probably should be,” said Christopher Marinac, director of research at wealth management firm Janney Montgomery Scott. The industry, which is recovering from the aftermath of a crisis triggered by the collapse of three mid-sized lenders earlier this year, is waiting for potential increases in capital requirements and is postponing buyback plans. “Once we have some degree of certainty that we can achieve our targets based on the new rules, I think that would put us in a position to really start thinking about share buybacks,” stated Comerica CFO James Herzog during a post-earnings call. The KBW Regional Banking Index (.KRX) was down nearly 1%, although it is still on track for its largest weekly gain since January 2022, following a series of positive earnings reports earlier this week that boosted sentiment. Reporting by Niket Nishant, Jaiveer Singh Shekhawat, and Sri Hari N S in Bengaluru; Editing by Devika Syamnath and Sriraj KalluvilaOur Standards: The Thomson Reuters Trust Principles. Niket Nishant Thomson Reuters Niket Nishant reports on breaking news and the quarterly earnings of Wall Street’s largest banks, card companies, financial technology upstarts, and asset managers. He also covers the biggest IPOs on U.S. exchanges and late-stage venture capital funding, along with news and regulatory developments in the cryptocurrency industry. His writing appears on the finance, business, markets, and future of money sections of the website. He completed his post-graduation from the Indian Institute of Journalism and New Media…
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