BofA Sees Economic Slowdown Hurting Lending Income

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(Bloomberg) -- Bank of America Corp (NYSE:BAC). said net interest income will be lower than analysts had expected this year as demand for loans starts to slow.

The second-largest US bank expects net interest income — the revenue collected from loan payments minus what depositors are paid — will be around $14.4 billion in the first three months of this year, Chief Financial Officer Alastair Borthwick said on a conference call with analysts Friday. Analysts had predicted more than $15 billion of NII for the first quarter.

The forecast comes after the bank reported a $14.7 billion NII haul in the fourth quarter on surging interest rates and loan growth, the highest total in at least a decade. Still, the 29% increase from a year earlier was smaller than analysts had forecast.

Shares of Charlotte, North Carolina-based Bank of America rose 0.5% to $34.64 at 12:28 p.m. in New York. They’ve declined almost 30% in the past 12 months.

NII, a major source of revenue for banks, is getting harder to predict amid a shaky economic outlook. Bank of America’s forecast for the first three months of the year has been adjusted to account for rising interest rates and a continued Federal Reserve tightening cycle to combat inflation, Borthwick said.

“We’ve got to stay patient” as rates start to stabilize, he said. 

The firm joins rivals JPMorgan Chase & Co. (NYSE:JPM), Wells Fargo (NYSE:WFC) & Co. and Citigroup Inc (NYSE:C). in giving lower-than-expected guidance for net interest income this year. The expectations at the biggest US banks offer a glimpse into how US consumers and companies are faring amid persistent inflation and higher borrowing costs. 

As loan growth shows signs of slowing, interest income is set to plateau. Bank of America expects loan growth in the mid-single digits in 2023, along with increased funding costs, executives said on the call. The slowdown in borrowing is expected to come from commercial and credit-card lending, they said. 

The pace of loan growth Bank of America has enjoyed isn’t sustainable given the current state of the economy, Chief Executive Officer Brian Moynihan said on the call.

“People are reading the same headlines we’re reading” about a potential recession, he said. 

Investors are watching for other signs of cracks in the economy, including set-asides by banks for potentially soured loans. Bank of America added $403 million to its loan-loss reserves in the fourth quarter, compared with a release of $851 million a year earlier. 

©2023 Bloomberg L.P.