Senior Loan Officer Survey – Bankers less stringent; weak loan demand

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This post is a guest contribution by Asha Bangalore* of The Northern Trust  Company.

Financial headwinds are holding back the pace of economic recovery.  This mantra has been repeated frequently in recent months. The latest Senior Loan Officer Opinion Survey now paints an improvement in credit conditions from the supply side.  Bankers are not tightening standards but loan demand is weak.  Chart 7 indicates that bankers are no longer tightening underwriting standards for both large and small firms.

nt-chart-7

Fewer firms reported increasing spreads on loans in the latest survey compared with the survey results of November (see chart 8).

nt-chart-8

But, demand for loans remained weak (see chart 9).

nt-chart-9

Fewer banks in January reported tightening underwriting standards for commercial real estate compared with the responses in November, while demand for these loans continued to be weak.

nt-chart-10

In the household sector, the demand for mortgage loans (see chart 11) and other consumer loans was weak (see chart 12).

nt-chart-11

nt-chart-12

Chart 13 indicates that bankers have eased mortgage loan underwriting standards from the latter part of 2008.

nt-chart-13

Consumer loans excluding mortgages are also being extended under less stringent standards compared with the situation a year ago (see chart 14).

nt-chart-14

More importantly, bankers are more willing to lend to consumers (see chart 15).  Essentially, demand for loans remains significantly weak while bankers have lowered underwriting standards as economic conditions have improved.

nt-chart-15

* Asha Bangalore is vice president and economist at The Northern Trust Company, Chicago. Prior to joining the bank in 1994, she was consultant to savings and loan institutions and commercial banks at Financial & Economic Strategies Corporation, Chicago.

Source: Northern Trust – Daily Global Commentary, February 1, 2010.

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