Banks loosened loan standards, survey shows
US banks reported stronger demand and loosened their standards for most types of loan as credit markets continue to heal.
According to the US Federal Reserve’s latest survey of senior loan officers, no bank tightened its standards for commercial lending in the three months to July 2012, and 10 per cent of banks eased their requirements.
The gradual improvement in credit conditions is a bright spot in the US economy and reflects the recovery in bank balance sheets. Easier lending conditions could support stronger growth.
“Improving credit conditions continue to be one of the few bright spots of the economic recovery,” said Millan Mulraine at TD Securities in New York. He said the survey “showed that banks are continuing to loosen lending conditions on a broad swathe of credit products, with consumer and business borrowers both facing easier loan standards”.
Banks continued to impose tough standards on residential mortgage lending but there was a notable rise in mortgage demand, adding to evidence that the US housing market has bottomed out. More than 55 per cent of banks said that demand for prime residential mortgages was either moderately or substantially stronger.
“A clearer sign of a pickup in residential loan demand supports our view that a gradual housing sector recovery is in place and will increasingly be evident across measures of housing starts, sales and prices,” noted analysts at Barclays Capital in New York.
Some banks reported high volumes of refinancing applications due to the government’s Home Affordable Refinance Programme. The most important factors limiting the willingness of banks to support Harp were limited capacity to handle the volume of refinancing, not wanting to refinance other banks’ loans, and restrictions on credit quality.
US banks continued to tighten up on lending to their counterparts in Europe. 64 per cent of banks said that they had toughened up on standards and terms and no bank loosened them.