Small U.S. banks have continued to post blistering growth in commercial lending as federal small business relief loans pile up on balance sheets, while increases at large banks appear to have been restrained by paydowns of corporate credit lines.

Meanwhile, consumer loans continued to drop across the industry. The widespread collapse in consumer spending amid the COVID-19 pandemic appears to have outweighed a deterioration in credit card payment rates as borrowers opt into forbearance programs offered by lenders.

Excluding the 25 largest banks by assets, commercial and industrial lending increased by 3.9%, or $34.2 billion, during the week ended May 6, according to seasonally adjusted data in the Federal Reserve's most recent H.8 report on commercial banks operating in the U.S. Overall, C&I loans have increased 36.7%, or $247.06 billion, at these banks since Feb. 26.

Banks of all sizes have been adding massive amounts of loans to their balance sheets under the Small Business Administration's Paycheck Protection Program. As of May 16, lenders with more than $50 billion of assets had made $191.7 billion of PPP loans, and smaller banks had loaned $321.57 billion.

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But while C&I lending at the 25 largest banks increased by 24.9%, or $323.7 billion, since Feb. 26, growth has lagged smaller banks during each of the four most recent weeks for which data is available. The initial surge in growth at big banks in March was largely driven by borrowing against credit lines by large corporations. Now, healthy companies with access to thawed capital markets appear to be using proceeds from newly issued bonds to pay down bank lines.

Analysts at BofA Global Research estimated in a May 18 note that investment grade companies in the U.S. have refinanced about $21 billion of line borrowing into corporate bonds so far, and expect them to do the same with a remaining amount of about $100 billion now that the market for direct issuance is "wide open."

The analysts also estimated that investment grade companies have raised $350 billion in cash since the threat from the coronavirus outbreak became clear, an amount they believe is more than enough to cover the net cash flow deficit they project the companies face because of the crisis. "We expect companies to be increasingly confident spending from the war chest instead of issuing," they wrote, adding that once they refinance the bank lines, investment grade companies "have very little to do" in the way of raising new debt.

Broadly, banks have reported tightening C&I credit standards and less competition from peers and nonbanks, and credit spreads have widened.

But even though C&I growth at large banks has lagged, it remained strong with an increase of 1.2% in the week ended May 6. Moreover, loan levels remain far higher than during most of the first quarter. JPMorgan Chase & Co. increased its guidance for net interest income in early May, reiterating that it had funded about $29 billion of PPP loans. Also in early May, PNC Financial Services Group Inc. raised its forecast for second-quarter average loan growth, in part because of PPP activity.

Consumer loans at U.S. commercial banks fell 0.5% during the week ended May 6, led by a 0.9% decline in credit card loans. That marked the seventh consecutive weekly decline. Credit card loans have now dropped 5.5% year over year to $776.58 billion.

Declining card receivables have taken hold despite a sharp fall in April payment rates, or the percentage of outstanding balances cardholders pay off in a given month. Analysts at Keefe Bruyette & Woods calculated that the average payment rate across U.S. card lenders fell 150 basis points from the year prior to 23%, including drops at Bank of America Corp., Capital One Financial Corp., Citigroup Inc. and Discover Financial Services. The deterioration reflects "the challenges borrowers are facing in the COVID-19 environment along with deferrals being granted by the card issuers," the KBW analysts wrote.

The sharp drop in consumer spending appears to be the principal force behind falling card receivables. At American Express Co., consumer card loans fell 13.5% year over year to $50.5 billion in April, which analysts at Compass Point said reflected the importance of spending on travel, entertainment and dining to the company's portfolio, and its focus on "higher end consumers who pay down their balances more quickly."

The Compass Point analysts predicted that Amex's "portfolio will continue to shrink as it will take some time for spending on T&E to come back even as the U.S. economy begins to gradually open up."