On balance, lending standards have generally eased and demand has increased during the current expansion. However, different categories of loans have experienced different fates
However, data from the Fed’s Senior Loan Officer Opinion Survey (SLOOS) suggest that credit in the auto sector has become somewhat tighter over the past year, as the net percent of banks easing standards on auto loans has decreased to 6 percent from 15 percent in Q1 2014 (middle chart). At the same time, the data suggest that demand for auto loans remains robust, as the net percent of banks reporting stronger demand for auto loans exceeds any other consumer loan category (bottom chart). Fortunately, we have not yet seen a meaningful or sustained pickup in delinquencies in this space, which should abate some near-term concern about deterioration in this loan category.
Another loan category where demand has been exceptionally strong is the commercial real estate (CRE) sector. The net percent of banks reporting stronger demand is higher for CRE loans than any other category in the SLOOS. This coincides with the apartment boom we have seen over the past few years, and fundamentals in this space suggest that demand for apartments should remain strong going forward. Interestingly, banks seem to have approached loans in this space with caution recently, as a net positive percentage of banks have been tightening standards for residential CRE loans for the past four quarters. Delinquencies and charge-offs in the CRE space continue to hover near the lows seen in the prior expansion, an encouraging sign for the health of loans in this sector.
The Bank Loan Potpourri
As we have mentioned in prior reports, the U.S. economy is very much a split-level economy at present. While investment spending and net exports have subtracted from GDP growth, domestic consumption has remained a key support to growth. Consumer spending has been supported by recent acceleration in consumer lending activity, even though the rate of growth has not been quite as strong as we saw in the 1980s and 90s (top chart*). Much of this growth has been driven by the well-documented boom in auto lending, which has raised concerns among some analysts, us included.However, data from the Fed’s Senior Loan Officer Opinion Survey (SLOOS) suggest that credit in the auto sector has become somewhat tighter over the past year, as the net percent of banks easing standards on auto loans has decreased to 6 percent from 15 percent in Q1 2014 (middle chart). At the same time, the data suggest that demand for auto loans remains robust, as the net percent of banks reporting stronger demand for auto loans exceeds any other consumer loan category (bottom chart). Fortunately, we have not yet seen a meaningful or sustained pickup in delinquencies in this space, which should abate some near-term concern about deterioration in this loan category.
Another loan category where demand has been exceptionally strong is the commercial real estate (CRE) sector. The net percent of banks reporting stronger demand is higher for CRE loans than any other category in the SLOOS. This coincides with the apartment boom we have seen over the past few years, and fundamentals in this space suggest that demand for apartments should remain strong going forward. Interestingly, banks seem to have approached loans in this space with caution recently, as a net positive percentage of banks have been tightening standards for residential CRE loans for the past four quarters. Delinquencies and charge-offs in the CRE space continue to hover near the lows seen in the prior expansion, an encouraging sign for the health of loans in this sector.
Small Business Lending Struggles
Small business lending continues to be one of the trouble spots of the bank lending market, with total small business loans still below 2010 levels. Interestingly, the middle chart seems to suggest this is a function of supply and demand, as standards are less tight and demand is stronger for loans to medium and large enterprises relative to small business loans. However, plans to increase capital outlays among small businesses have increased in more typical cyclical fashion, suggesting some of these businesses are perhaps funding investment with cash flow rather than with loans, or are utilizing alternative non-bank lending source
Recommended Content
Editors’ Picks
AUD/USD: Further losses retarget the 200-day SMA
Further gains in the greenback and a bearish performance of the commodity complex bolstered the continuation of the selling pressure in AUD/USD, which this time revisited three-day lows near 0.6560.
EUR/USD: Further weakness remains on the cards
EUR/USD added to Tuesday’s pullback and retested the 1.0730 region on the back of the persistent recovery in the Greenback, always against the backdrop of the resurgence of the Fed-ECB monetary policy divergence.
Gold flirts with $2,320 as USD demand losses steam
Gold struggles to make a decisive move in either direction and moves sideways in a narrow channel above $2,300. The benchmark 10-year US Treasury bond yield clings to modest gains near 4.5% and limits XAU/USD's upside.
Bitcoin price dips to $61K range, encourages buying spree among BTC fish, dolphins and sharks
Bitcoin (BTC) price is chopping downwards on the one-day time frame, while the outlook seen in the one-week period is a horizontal trade. In this shakeout moment, data shows that large holders are using the correction to buy up BTC.
Navigating the future of precious metals
In a recent episode of the Vancouver Resource Investment Conference podcast, hosted by Jesse Day, guests Stefan Gleason and JP Cortez shared their expert analysis on the dynamics of the gold and silver markets and discussed legislative efforts to promote these metals as sound money in the United States.