Friday, September 25, 2009

Euro Area Commercial Loans Holding Steady in 2009

In stark contrast to the United States and Canada, the Euro Area has only seen a slight decline in commercial loans outstanding in 2009. As shown in Slide 1, data from the July 2009 European Central Bank Monthly Bulletin shows a reduction in short-term loans in favor of medium to longer term loans. Loan demand is down overall due to a reduction in inventory investment and merger & acquisition activity. This reduction is offset by enterprises locking in long term funding at lower interest rates. (Double click on image to enlarge.)

The month-over-month data in Slide 2, highlights the Euro Area’s shift from short term loan maturities into longer-term loans. In fact, as of July 2009, loans with maturities over 5 years are at their highest historical level.

As shown in Slide 3, the European Central Bank Lending Survey highlights an easing of credit standards for enterprises of all sizes since their peak in late 2008. This easing is driven by supply-side factors, such as banks’ access to market financing and banks’ liquidity position. Concerns over economic conditions continue to dampen easing of credit standards. Loan demand by Euro Area enterprises is improving slightly from its trough in January 2009.

Next week I will take a look at credit costs and credit quality.

Thursday, September 24, 2009

Canadian Business Loans Experiencing Dramatic Decline in 2009

After four years of double digit loan growth in Canada, outstanding business loans dropped dramatically in 2009. Tightening credit conditions and the uncertain economic outlook in the United States is driving the decline. Canadian businesses are facing significantly higher borrowing costs, tougher credit standards, and reduced credit lines. (Double click on image to enlarge)

Looking at month-over-month data in Slide 2, 2009’s Canadian decline has not been as steady as the decline experienced in the United States. Similar to the US, the decline in business mortgages is half that of the decline in non-mortgage loans (-8% vs. -16%).

As seen in Slide 3, the Bank of Canada Senior Loan Officer Survey (SLOS) shows similar tightening of credit conditions for Canadian businesses as we see in the United States. As in the US, the past two quarters are showing some easing in lending conditions. The SLOS reported tightened conditions are most prevalent in struggling industries such as automotive, forestry, and transportation.

The next posting will discuss business lending conditions in the Euro Area where lending has stayed steady throughout 2009. 

Wednesday, September 23, 2009

Commercial Lending by US Banks Steadily Declining Throughout 2009

After several years of double-digit growth in commercial lending, as of the 6/30/09 FDIC Call Reports, outstanding balances across major commercial loan types are collectively down 5.3%. Both commercial & industrial (C&I) and construction & land development balances are down about 9%. Surprisingly, commercial real estate (CRE) is up 2% for the first 6 months of 2009. Slide 1 shows outstanding balances from 2003 through 6/30/09. (double click on picture to enlarge slide)

FDIC call report data is only available quarterly. In order to examine month-to-month trends in commercial lending, you need to look at estimated data from the Federal Reserve’s weekly sampling of 875 commercial banks for C&I and CRE outstanding balances. The Fed’s data shows a slightly different picture. As shown in Slide 2, C&I and CRE balances have steadily declined every month in 2009, with an overall decline of 6.8% as of 9/8/09.

According to the FRB July 2009 Senior Loan Officer Opinion Survey, declining loan demand and deteriorating credit quality are behind the steady reduction in commercial and industrial lending across firms of all sizes. In response to deteriorating credit quality, banks are subjecting small, medium and large businesses to tougher lending standards and higher interest rate spreads. The banks surveyed said they expect lending standards across all loan categories would remain tighter than average until the second half of 2010. As shown in Slide 3, a bright spot in the survey is a lessening of banks tightening lending standards after a peak in November 2008 along with a slight improvement in loan demand.

The next posting will discuss similar trends in Canada and the Euro Area.