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Who wants credit? No one
A (slightly messy) Chart of the Day - corporate demand for credit goes the way of consumer lending and mortgages:
It comes from the ECB’s lending survey for April - a publication that Robert Self, banking analyst at Credit Suisse, likes to keep a close eye on, since credit cycles have tended to correlate tightly with lending standards.
Where a positive number represents more banks reporting tighter standards, and vice versa, the scores for April were:
- Tightening in household loans (33 vs 21 in January)
- Tightening in consumer credit (19 vs 10 in January)
- Tightening in corporate credit (49 vs 41 in January)
And conditions are not looking to get much better in the short term, as CS’s Self explained in a note to clients on Tuesday:
The expectation for the Q2 2008 survey is for lending standards to tighten further, with tightening on household loans and consumer credit to be stronger than in Q1 2008, but tightening on corporate loans to be weaker. Demand for lending is expected to ease further across mortgages, consumer credit and corporate. Although this easing in demand is expected to be weaker on household and corporates than observed in Q1 2008.
Related links:
The Euro area bank lending survey - ECB
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I don’t work in finance, but my (private, opaque) company has had to recently renew bonds used to finance various acquisitions. Subjectively, the new lenders are taking much more interest in the day-to-day operations of the company, its internal business processes and the health of its markets/customers. Not surprising in the circumstances…
Ando - from observation in the leverage loan market they are lending less multiples at higher spreads and re-introducing strict financial covenants. Therefore PE are having to inject more equity. In the giddy highs of the credit boom 5x leverage at senior level (basedon EBITDA) with cov lite loans lending at 200-225bps were becoming common. Now 3-4x at spreads of 300-350bps and full covenants are needed to get a deal to market
It would be interesting to see a post or a story looking at how banks are tightening corporate lending standards. Is it simply by refusing credit or ramping up the cost of credit to prohibitive levels, or are they introducing tighter conditions and restrictive covenants?