Bank economists guardedly optimistic on business lending


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Bank economists are expressing guarded hope that business lending will hold steady in 2024, marking a shift in sentiment after a year of industry turbulence.

They still expect credit conditions for businesses to weaken over the next six months, but their outlook for the segment reached its most upbeat since late 2022, according to the American Bankers Association’s latest Credit Condition Index, which forecasts credit quality and availability. 

Sayee Srinivasan, the ABA’s chief economist, said that the current credit situation is better than many economists expected, which is giving room to optimism for the future. 

“If you went back a year or longer, every economist out there, including the [Federal Reserve Board], were forecasting that we’d be in a recession by now, but we haven’t seen that,” Srinivasan said. “If you know you’re heading to a recession, you’re going to be pretty pessimistic in your outlook in terms of credit supply and credit quality.”

The report, based on a survey of about 15 chief economists from major banks across the country that make up the ABA’s economic advisory committee, showed that while most respondents expect business credit quality to worsen in upcoming quarters, nearly half think business credit availability will improve. 

On a scale in which readings below 50 indicate that the committee predicts credit market conditions to deteriorate, the Business Credit Index — a subset of the overall index —was 26.9 in the first quarter, a 19-point improvement from the end of last year. 

Banks didn’t pull back on lending as much as expected in 2023, Srinivasan said, even as the ABA’s credit index forecast poor credit conditions. He added that the latest data indicates that banks will continue to lend to businesses and consumers, especially if the Fed cuts rates as expected. 

Many banks forecast that lending would stay fairly flat, or even moderately increase in 2024, following a feeble year for loan growth amid rising interest rates and uncertainty in the sector. Webster Financial, BOK Financial and Huntington Bancshares each project their loan portfolio to grow about 5%, give or take 2 percentage points, in 2024, the banks said on recent earnings calls. Still, Regions Financial and KeyCorp said they anticipate total loans to drop this year.

Brian Moynihan, CEO of Bank of America, said at an industry conference on Wednesday that growth for its commercial lines of credit were “an absolute dogfight right now” because of clients’ fears about economic uncertainty. 

Additionally, office loans have been under scrutiny recently after New York Community Bancorp’s stock sank 37% the day it announced its commercial real estate portfolio had taken a hit. Srinivasan said the ABA’s credit report stays high level because segments across institutions can vary widely.

Despite some rockiness in the commercial real estate market, most bank leaders have continued to emphasize that they’re comfortable with the quality of their portfolios. Recent data from IntraFi shows that bank leaders are largely confident in credit quality at their own institutions, but more than one-third are concerned about credit quality across the industry.

ABA also takes the temperature of consumer credit and an overall “headline credit”, which were 11.5 and 14.8 in the first quarter, respectively. While consumer credit saw a 9.8-point rise from the previous quarter, the outlook for the segment is still near all-time lows due to concern about credit quality.


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2024-02-22 01:28:00

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