Banks Could Earn Billions in Fees on PPP Loans

Matty-Sways

Banks are set to make billions in fees from the PPP loans which should pad their balance sheets.

Banks are set to earn between $14.3 billion to $24.6 billion in processing fees from the Paycheck Protection Program, according to The Wall Street Journal.

The $670 billion PPP loans are designed to support U.S. small businesses to survive the coronavirus crisis. Small businesses could get the money easier as more lending institutions were authorized to participate in the program. Borrowers could forgive the loans if they spend the money on certain expenses like rent or payroll. Banks could charge processing fees between 1% and 5%, depending on the size of the loans.

Banks could also collect 1% in interest on any unforgiven portions, not exceeding their cost of funds. JPMorgan Chase & Co. customers received $29 billion in PPP loans, and the bank is in line for $800 million to $1.38 billion in fees. Bank of America customers received $25 billion in loans, and the bank could earn between $770 million and $1.21 billion in fees.

Due to the cost of building out loan infrastructure and hiring thousands of workers, banks don’t expect to make profits from the program. A separate S&P Global Market Intelligence analysis reported that “more than 30 banks could get as much from the PPP loans as they reported in net revenue for all of 2019.”

Banks, including JPMorgan, Bank of America and Wells Fargo & Co., have said they would donate any profits they make on PPP.

A Bank of America spokesman said, “we will use the net proceeds of fees...to support small businesses and the communities and nonprofits we serve.”

Read the full story here.

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