Citizens is confident that it will continue to expand its loan portfolio through 2023, according to Donald McCree, its head of commercial banking. During the fourth quarter, the Providence, Rhode Island, company recorded loan growth of 22% from a year earlier.
Kelvin Ma/Bloomberg
For all the recession trepidation permeating markets, for all the talk about slowing loan demand, Citizens Financial Group in Providence, Rhode Island, is bullish on its own growth opportunities and cautiously optimistic about the health of the U.S. economy through 2023.
The $227 billion-asset bank, coming off its 2022 acquisition of Investors Bancorp, said commercial clients throughout its Eastern footprint continue to pursue expansion plans, albeit with an added dose of prudence, and consumers enjoy one of the most favorable job markets in generations. Unemployment hit a 53-year low in January.
“It still feels pretty good out there,” Donald McCree, head of commercial banking at Citizens, said in an interview. “We continue to hear from a lot of companies that they are doing quite well.”
He said some commercial clients are grappling with labor shortages and fallout from the pandemic, including lingering supply shortages and elevated inflation. Those challenges, combined with rising interest rates over the past year, have galvanized worries about a looming recession in 2023.
Citizens, however, looks for a modest downturn or even just a leveling off from the solid growth rates of late 2022. That leaves a sturdy foundation for continued business investment — and borrowing to finance that growth, McCree said.
While refinancing activity has slowed to a crawl, “there’s actually plenty of demand” for other loans across most sectors, McCree said.
To be sure, there are emerging pockets of weakness. In addition to much-publicized pullbacks across big technology firms, office properties represent an area of concern, he said, given enduring remote-work trends. Parts of the health care industry are grappling with severe labor shortages, notably among nurses, and these are driving up costs and crimping the hospital industry’s thin margins, McCree added.
But overall, most industries are pushing forward, McCree said. He warned that Citizens “won’t be too aggressive,” but said it is confident that it will continue to expand its loan portfolio through 2023. This would follow fourth-quarter loan growth of 22% from a year earlier.
Part of that growth was organic, and part of it came from acquiring Investors and its nearly $28 billion of assets across New Jersey and New York. Citizens had closed several smaller deals over the past five years, including in the wealth management arena.
Chris Weyrauch, head of Citizens Wealth Management, said that in addition to acquiring thousands of new customers in recent years, the bank in 2022 also invested substantially in new private banking products and training programs for its advisors.
Two new programs introduced last fall — CitizensPlus and Citizens Private Client — offer wealth management services to the company’s retail banking customer base. The bank is expanding retail services broadly.
“These were really monumental efforts,” Weyrauch said in an interview. “What’s very evident is the enormous opportunity to broaden” wealth management services to new clients and deepen ties with the bank’s existing customer base.
While the economy may be slowing, the robust job market built on the pandemic recovery bolstered the finances of more Americans and fueled greater interest in financial guidance, retirement planning and overall wealth management services, he said.
Weyrauch said this adds to the bank’s long-term optimism, even as it joins peers in bracing for a shallow downturn this year. “More and more, people are engaged for the long haul,” he said, “and that gives us a lot of confidence.”
Citizens reflects wider industry sentiment. While there are exceptions, bankers are more concerned about a recession now than in 2022 but still generally positive about the year ahead.
A Piper Sandler survey of bank CEOs found that 83% expect balance sheet growth this year, boosted by expectations of continued lending gains following increases across the industry last year. However, a majority expect more borrower defaults this year.
The Federal Deposit Insurance Corp.’s latest Quarterly Banking Profile showed that the banking sector posted mixed results late last year. Banks reported near-record annual loan growth in the fourth quarter and strong interest income, creating momentum heading into 2023.
At the same time, while loan losses are near historically low levels, banks boosted reserves for potential credit problems ahead amid festering inflation tied to global geopolitical challenges, including Russia’s war in Ukraine. This cut into otherwise solid profit levels, the FDIC said.
Still, “credit quality remained above pre-pandemic levels despite elevated inflation,” said Sayee Srinivasan, chief economist at the American Bankers Association. “The banking industry remains well capitalized and highly liquid. That strength will help the nation’s banks weather potential headwinds.”