Banking Sector in 2025: The Impact of Lower Interest Rates

Effect on Loan and Deposit Growth

Despite lower interest rates, banks are actively driving loan and deposit growth. Bank of America and U.S. Bancorp report targeted loan growth and stable consumer deposits. Wells Fargo notes a 2% increase in average loans, while Citigroup sees higher retail banking revenues from deposit spreads and loan growth. PNC anticipates stable to declining deposits.

"We're trying to drive this loan growth, we're trying to drive the deposit growth. And as Brian pointed out, it's been a pretty unusual period in history, where we've had an enormous change in the rate structure and in the fiscal stimulus and the effects now fading away to something more normal." --- (BAC, earning call, 2024/Q2)

"We are seeing good opportunities for loan growth in targeted portfolios and notably, we continue to see consumer deposit growth despite the impact of QT on industry deposit levels." --- (USB, earning call, 2024/Q1)

"Average loans outstanding increased by 2% from a year ago with growth in the first half of the year offsetting declines later in the year reflecting weaker loan demand as well as credit tightening actions." --- (WFC, event transcript, 2024/04/30)

"I mean, clearly there was tax related outflows and things like that this quarter, and with loan growth being muted, should we be anticipating deposits stable to down, or are you going to be out there trying to get deposit growth, just again, asking from the context of how we should think about deposit pricing as we work through our models?" --- (PNC, earning call, 2024/Q2)

"Retail banking revenues increased 3%, driven by higher deposit spreads as well as mortgage and installment loan growth." --- (C, earning call, 2024/Q2)

Role of Technology in Mitigating Challenges

Banks are leveraging digital assets, cloud technology, AI, and new tech centers to enhance efficiencies, support growth, and mitigate challenges posed by lower interest rates.

"But as the NCL rates approach steady-state levels and the mitigating actions that all of us have been putting in place against the industry headwinds as those take hold, we expect the returns will improve and support the medium -- the firm-wide medium-term targets. In the retail bank, we're continuing to focus on growing share in our six core markets and we're doing that leveraging our physical and digital assets and it plays an important role in enabling the wealth continuum and the growth that we are looking at in our Wealth franchise." --- (C, earning call, 2024/Q2)

"Elevating this position to the operating committee level reflects how critical this function will be going forward and how serious we expect IH to influence our business. 2nd, getting our technology to the cloud, whether the public cloud or the private cloud is essential to fully maximize all of our capabilities, including the Power BI data." --- (JPM, event transcript, 2024/05/21)

"People. Even the best technology serves only as a tool for helping to make informed decisions in real time about the risks we are taking." --- (GS, sec filing, 2024/Q1)

"And you can think about the efficiencies associated with using AI to break down some of the classic infrastructure controls, so that as long as there are high quality eyes on top of the technology development, you can be in a cycle where you're beginning to be able to process more faster through the pipes, knowing that you're going to have AI as something that will, over time, relieve some of the SG and A pressure." --- (MS, conference, 2024/06/10)

"The opening of the new technology centre in Glasgow will support the firm's commitment to enhancing U.K. job opportunities, particularly roles in technology, as the building provides vital software development facilities to the firm and its clients worldwide." --- (JPM, press release, 2024/05/14)

Impact on Non-Interest Income

Non-interest income has shown significant growth across major banks, driven by strategic investments and favorable market conditions. For instance, Wells Fargo and Bank of America reported increases in non-interest income, which helped offset declines in net interest income. Goldman Sachs highlighted substantial gains in investment banking revenues, particularly in debt underwriting and advisory services.

"26% in the first quarter to 25%.Turning to non-interest income on Slide 6. Non-interest income increased 19% from a year ago with growth across most categories, reflecting both the benefit of the investments we've been making in our businesses as well as the market conditions as Charlie highlighted." --- (WFC, earning call, 2024/Q2)

"You had -- you've shown $100 million in NII, total net income benefit of $500 million after tax, so probably implying about $500 million, $600 million of non-interest income benefit." --- (C, earning call, 2024/Q1)

"We grew revenue from the second quarter of 2023 as improvement in non-interest income overcame the decline in net interest income." --- (BAC, earning call, 2024/Q2)

"Non-Interest Revenues. Investment banking revenues in the consolidated statements of earnings were $2.09 billion for the first quarter of 2024, 32% higher than the first quarter of 2023, reflecting significantly higher revenues in debt underwriting, primarily driven by leveraged finance activity, in advisory, reflecting an increase in completed mergers and acquisitions transactions, and in equity underwriting, primarily from initial public and secondary offerings." --- (GS, sec filing, 2024/Q1)

"You talked about the mix shift and non-interest down and interest bearing up, but just wondering just what's happening on the pricing side and are you still seeing both sides, consumer and wholesale, if you can maybe just kind of give us the dynamics that's happening underneath and how you expect that to continue as we get to this, as we stay in this rates peak?" --- (WFC, earning call, 2024/Q1)

Future Outlook and Sector Evolution

JPMorgan Chase is evolving its business lines to enhance client service and deliver comprehensive banking solutions. Goldman Sachs anticipates potential revenue impacts from economic downturns. Bank of America is optimistic about future performance, while Morgan Stanley's share repurchases reflect strategic market considerations. Citigroup continues to execute its evolving business strategy.

"Our heritage businesses were both extremely successful in their own right. Bringing them together as part of a combined new line of business is the kind of natural evolution that will make it even easier for clients to do business with us. And this will better position us to deliver our world class wholesale banking solution, which range from strategic advisory and lending to payments and risk management." --- (JPM, event transcript, 2024/05/20)

"In the future, if market and economic conditions deteriorate, it may lead to a decline in asset prices, or investors transitioning to asset classes that typically generate lower fees or continuing to withdraw their assets, and net revenues in Asset & Wealth Management would likely be negatively impacted." --- (GS, sec filing, 2024/Q1)

"Year to date, our stock is up 13% with the bank index and the S and P 500 up roughly half of that. Overall, we believe your company remains well positioned for the future and where we foresee as a better operating environment in the second half of twenty twenty four." --- (BAC, event transcript, 2024/04/24)

"The share repurchases will be exercised from time to time at prices the Firm deems appropriate, subject to various considerations, including current market conditions, the Firm's capital position and future economic and earnings outlook." --- (MS, press release, 2024/06/28)

"And we're still in the midst of kind of the execution of our strategy, the evolution of the business mix and the business model." --- (C, earning call, 2024/Q1)