Banks' main source of fuel is drying up, but it's not as bad as it seems

Upon first glance, a slowdown in business lending would suggest troubled times ahead for banks.

Think again, says Credit Suisse.

They see growth in commercial and industrial (C&I) loans normalizing with gross domestic product, which it's outperformed for the past several years. The two measures have historically been highly correlated, and C&I is simply allowing GDP to play catch-up, according to Credit Suisse.

The Federal Reserve's most recent H.8 report showed that C&I loans grew 5% year-over-year in the first quarter, a slowdown from last year's 9% compound average annual growth rate. While lower, the expansion more closely mirrored GDP than it has in previous periods, indicating a return to normalcy.

Perhaps most importantly for bank stocks, the slowdown in C&I loans, which are used by businesses to fund activities from buying equipment to building factories, won't materially hurt profit growth, the firm says. That's a good sign since earnings expansion has historically been the biggest driver of share price appreciation.

Financial firms in the S&P 500 are still expected to see profit expansion of 12% in 2017, among the best out of all major industries, according to analysts surveyed by Bloomberg.

Another possible explanation for slower business lending is that companies are taking advantage of the healthy macro environment to tap capital markets and issue their own debt, according to Credit Suisse.

Meanwhile, Goldman Sachs has identified two banks that look positioned to buck the trend of shrinking C&I lending: PNC Bank and Bank of America.

In a first-quarter earnings call, PNC chairman and CEO Bill Demchak noted that the firm's average loan growth during the period was "once again driven by commercial loans." He noted the area's "fairly consistent growth rate" and forecast that it's "likely to continue."

Bank of America CEO Brian Moynihan noted in his firm's most recent earnings call that middle market business loans grew 7% year-over-year, while smaller business segments saw 3% growth.

"Our clients stand ready, they're engaged, and they're ready to grow faster as the economy continues to grow and improve," he said.