The United States: financial institutions have stricter financing standards
2023-02-09
■ The demand for loans dropped rapidly and sharply, and the loan standards were further tightened
■ It shows that US financial institutions are cautious about the rise of credit risk related to the slowdown of economic activity
The Federal Reserve (Fed) released the latest senior credit officer opinion survey (SLOOS) on February 6. In this survey, FRB conducted quarterly interviews with US financial institutions to understand the changes in loan standards and capital requirements compared with three months ago, and received a reply on January 6 this year. According to this, the loan demand DI of large and medium-sized enterprises (with annual sales of more than 50 million US dollars) (the proportion of demand increase to all responses minus the proportion of demand decrease) is - 31.3 (- 8.8) compared with the last October survey, indicating that the loan demand has declined rapidly and significantly. Most of the banks that indicated the weakening of loan demand mentioned the reduction of customer capital expenditure, as well as the reduction of capital demand for mergers and acquisitions, inventory and accounts receivable.
In addition, since the investigation in January 2009, excluding the period of COVID-19 epidemic (from January 2020 to July 2020), the loan standard DI (the ratio of tightening to all responses minus the easing ratio) is+44.8. This is a further increase compared with the previous survey (+39.1), which is at a higher level. Most banks said that they had tightened their lending standards and conditions due to the deterioration of the business environment and increased uncertainty. In addition to playing an effective role as a leading indicator of capital investment, industrial production and new employment, the lending standard DI has also been recognized as the leading indicator of enterprise profits. According to the data prepared by the financial information company Refinitiv (as of June 6), since the beginning of October last year, the forecast of earnings per share (EPS) of the S&P 500 companies for the whole year of 2023 has accelerated downward (up 7.8%). This trend may continue temporarily, so we should be cautious.
In addition, at this SLOOS, we were also asked how the loan standard, credit quality and loan demand will change in 2023. The loan standards for various types of loans, including corporate loans, commercial real estate loans and personal loans (including housing loans) have been tightened, mainly due to the decline in the value of collateral, the decline in risk tolerance and the decline in the creditworthiness of borrowers. With regard to the loan demand, it is expected that the demand for all types of loans will also weaken, due to the rise in interest rates and the decline in consumption and investment demand. This shows that American financial institutions are currently cautious about the rise of credit risk related to the cooling of economic activities.