Boston, MA -- (SBWIRE) -- 12/23/2013 -- We expect that US commercial banking activity will continue to grow at a relatively robust pace with asset growth of 8.0% and 7.0% in 2013 and 2014, as economic recovery in the US continues to take hold. While much of the asset growth in 2013 has been attributable to rising cash assets, we believe that 2014 will see stronger loan growth, as credit demand from households and nonfinancial businesses increases.

We believe that the US commercial banking sector will continue to experience relatively robust asset growth over the next several years, and that extending credit to the economy will increasingly be the driving force behind this growth. Loan-to-deposit and loan-to-asset ratios, along with data on non-performing loans, lead us to believe that the banking sector is certainly capable of increasing credit to the economy, although the demand side of the equation has been fairly weak in recent quarters. In 2014 we expect the US economy to accelerate and the labour market to continue to improve, buoying consumer and business confidence and encouraging greater consumption and investment, both of which will result in greater borrowing from the commercial banking sector.

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Asset Growth Shows Banks Holding Cash

US commercial banking sector asset growth in the first nine months of 2013 has increased steadily to 6.9% year-on-year (y-o-y) in September, and as a result we are revising up our end-2013 asset growth forecast from 6.0% to 8.0%. That said, we believe base effects and slowing growth in some components of banks balance sheets will see total asset growth slow to 7.0% in 2014 and then 5.5% in 2015. We forecast that this rate of asset growth will push total assets to GDP from 83.8% of GDP in 2012 to 87.8% of GDP in 2015. While these top-line asset growth rates show a relatively stable rate of growth over the next few years, they belie what we believe will be a significant change in the US commercial banking sector. Accelerating asset growth in the year-to-date is part of a multi-year trend of banks holding more cash assets, while lending has actually decelerated.

Banks' cash holdings exploded beginning in the fall of 2008, as the federal government and US Federal Reserve (Fed) took extraordinary measures to address the global financial crisis. Cash assets increased from 3.4% of total assets in September 2008 to an all-time high of 17.5% of assets in September 2013; they have grown by 626% in nominal terms during the same period.

At the same time, client loan growth has been tepid, with the value of all commercial banking sector loans and leases roughly equal to its pre-crisis high of US7.3trn for most of 2013. Year-on-year growth in client loans has slowed markedly this year, and we are revising down our 2013 loan growth forecast from 6.0% to 1.0%.

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