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5 Banks to Gain From an Increase in Consumer Borrowing

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Consumer borrowing picked up in September after witnessing a fall in August. Per the latest release by the Fed, total consumer borrowing increased $16.2 billion in September, following a revised fall of $6.9 billion in August.

Notably, among the components of total borrowing, revolving credit increased $4 billion to $988.6 billion compared to the revised fall of $9.7 billion in August. This increase in borrowing suggests that consumers were willing to spend more following the COVID-19 related lockdown during the early part of the year.

Meanwhile, non-revolving debt, which includes vehicle loans and student loans, increased further in September. Borrowing increased by $12.2 billion to $3,172.7 billion dollars compared to August’s revised borrowing at $3,160.5 billion. Reflective of this, the U.S. Census Bureau reported that retail and food services sales for September jumped 1.9%, following a 0.6% increase in August, as mentioned in a Reuters’ article. The gains were largely due to an increase in sales of motor vehicles and parts dealers.

With the economy gradually turning around despite surging COVID-19 cases, consumers seem to be willing to spend more. The pandemic has also been instrumental in driving the changing needs with more people willing to buy their own vehicles in order to avoid public transport.

This surprise came on the back of the Fed holding the interest rates at an ultra-low level of 0% to 0.25% since the early part of 2020 when the pandemic hit the economy. The low interest rates have gradually encouraged people to resume their spending plans without having to worry too much about paying high interests.

Moreover, the Fed also recently reiterated its plans to continue with the low interest rate and maintain an accommodative policy stance, in its latest FOMC Policy Statement.

5 Top Banks to Buy Now

Consumers have increased their borrowing in September, with credit card borrowings and loans for automobiles being in focus. In such a scenario, it will be wise to invest in banking stocks that provide such financial services. We have selected five such stocks with the potential to make the most of the current trend. Notably, all these stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Fifth Third Bancorp (FITB - Free Report) provides financial services in the United States with its branch banking segment offering checking and savings accounts, home equity loans and lines of credit, credit cards, loans for automobiles, and so on. The company, currently, has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings increased 41% over the past 60 days. The company’s expected earnings growth rate for the next year is 18%.

Canadian Imperial Bank of Commerce (CM - Free Report) provides financial products and services in the United States, offering savings, and business accounts; mortgages; loans, lines of credit, student lines of credit, and business and agriculture loans; credit card, and so on. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for next year’s earnings increased 0.4% over the past 60 days. The company’s expected earnings growth rate for the next year is 11.3%.

Commerce Bancshares, Inc. (CBSH - Free Report) is the bank holding company for Commerce Bank, which provides consumer loans, such as automobile, motorcycle, marine, tractor/trailer, recreational vehicle, consumer debit and credit bank cards, and so on, under its consumer segment, in the United States. The company, currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings increased 21.7% over the past 60 days. The company’s expected earnings growth rate for the next year is 21.7%.

Ameris Bancorp (ABCB - Free Report) is the bank holding company for Ameris Bank, which provides consumer loans, including motor vehicle, home improvement, and home equity loans, among other services, in the United States. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings increased 39.7% over the past 60 days. Its expected earnings growth rate for the next quarter is 48.2%.

Fulton Financial Corporation (FULT - Free Report) provides banking and financial services in the United States, offering consumer loans, including home equity loans and lines of credit, automobile loans, equipment leases, personal lines of credit, and so on. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings increased 52.9% over the past 60 days. The company’s expected earnings growth rate for the next quarter is more than 100%.

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