We mentioned last week that bank business lending in the US had finally begun to recover, if weakly, after precipitous double-digit declines during and after the recession.
Today’s release of the Q4 senior loan officer survey from the Fed offers a bit more reason for having confidence that this will continue:
Overall, the January survey indicated that a modest net fraction of banks continued to ease standards and terms for commercial and industrial (C&I) loans over the fourth quarter while banks reported small mixed changes in their lending policies for other types of loans to businesses and households. Similarly, the respondents reported a moderate increase in demand for C&I loans but little change, on balance, in demand for other types of loans.
Regarding loans to businesses, survey respondents, particularly large banks, reported having eased standards and most terms on C&I loans, especially to large and middle-market firms. Banks mainly pointed to a more favorable or less uncertain economic outlook and increased competition from other banks or nonbank lenders as reasons for easing. …
Between 20 percent and 30 percent of respondents also cited reductions in defaults by borrowers in the public debt market, increased tolerance for risk, and industry-specific improvements. …
On the whole a decent improvement on the October survey, though this next item is a bit more mixed:
In addition, compared with the October survey, a larger fraction of banks reported an increase in inquiries from business borrowers for new or increased credit lines. Of the banks reporting stronger demand, about 75 percent indicated that the increased demand was partly due to funding needs for merger and acquisition activity, and more than half noted reduced borrowing from other banks or nonbank sources. Somewhat less than half of the banks also noted increased financing needs for inventories, accounts receivable, and investment in plant and equipment. Foreign institutions also reported a moderate net increase in demand and in inquiries regarding lines of credit, in line with the previous survey.
We’ve noted many times that businesses have capitalised on easy credit conditions to fund M&A, increase dividends, and buy back shares. This has been a boon for asset markets — but the effects on the broader economy are less salutary than if businesses were using their cash hoards and access to cheap financing to invest more in capital and labour.
Still, the survey (along with last Friday’s GDP numbers) indicates they’re at least starting to do some of that, so we can still file this next to, well, nearly every other indicator in a drawer marked Good But Could Be Better.
Related link:
The (still weak) US lending recovery – FT Alphaville