United States: Financial Institutions Beware of Credit Risks
2024-02-12
■ Loan demand is weak, and loan standards remain strict.
■ Financial institutions are concerned about the increase in arrears and bad debts.
The Federal Reserve Bank (FRB) released its latest Senior Loan Officer Opinion Survey (SLOOS) on the 5th. This is a survey conducted by the Federal Reserve every quarter to inquire about changes in loan standards and funding requirements from US financial institutions. The surveyed financial institutions received the survey questionnaire on December 18th last year and answered it before January 9th.
The demand for commercial industrial loans (DI) for large and medium-sized enterprises (with annual sales exceeding $50 million) has increased from -30.5 in October last year to -25.0. The loan standard DI (strict ratio loss ratio) has decreased from the previous survey (+33.9) to +14.5. The changes in these two DIs are mainly because in the past three months, there have been almost no responses indicating changes in loan demand and standards compared to the previous survey, and there have been almost no responses indicating an increase in loan demand or relaxation of loan standards. Amidst the uncertain economic outlook in the United States, the situation of weak loan demand and strict loan standards is gradually easing, but it persists.
In addition, additional questions were raised regarding the forecast for 2024 in this SLOOS. It is expected that the loan standards for commercial real estate, credit card, and car loans will be tightened, while commercial and residential loans will not change. The reasons include a decrease in guarantee value and an economic slowdown. In addition, loan demand is expected to increase across all loan types as interest rates decrease and customer consumption and investment demand recover. Although the loan quality of commercial industrial loans for large and medium-sized enterprises remains almost unchanged, the quality of most loan types is expected to deteriorate, with concerns about increased default and bad debts.
In an interview on the 4th, Federal Reserve Chairman Powell stated that although losses related to commercial real estate may continue to occur, he believes there will be no financial crisis. In addition, US Treasury Secretary Yellen stated at a House hearing on the 6th that regarding commercial real estate, although refinancing in a high-interest rate environment and rising vacancy rates due to changes in employment patterns have brought enormous pressure to property owners, it is still controllable with the support of banking regulatory agencies. At present, the financial market has not seen any signs of concern about the instability of the financial system. Some local banks in the United States holding large amounts of commercial real estate bonds are aware of the risk of high credit costs but are still observing future trends.
■ Financial institutions are concerned about the increase in arrears and bad debts.
The Federal Reserve Bank (FRB) released its latest Senior Loan Officer Opinion Survey (SLOOS) on the 5th. This is a survey conducted by the Federal Reserve every quarter to inquire about changes in loan standards and funding requirements from US financial institutions. The surveyed financial institutions received the survey questionnaire on December 18th last year and answered it before January 9th.
The demand for commercial industrial loans (DI) for large and medium-sized enterprises (with annual sales exceeding $50 million) has increased from -30.5 in October last year to -25.0. The loan standard DI (strict ratio loss ratio) has decreased from the previous survey (+33.9) to +14.5. The changes in these two DIs are mainly because in the past three months, there have been almost no responses indicating changes in loan demand and standards compared to the previous survey, and there have been almost no responses indicating an increase in loan demand or relaxation of loan standards. Amidst the uncertain economic outlook in the United States, the situation of weak loan demand and strict loan standards is gradually easing, but it persists.
In addition, additional questions were raised regarding the forecast for 2024 in this SLOOS. It is expected that the loan standards for commercial real estate, credit card, and car loans will be tightened, while commercial and residential loans will not change. The reasons include a decrease in guarantee value and an economic slowdown. In addition, loan demand is expected to increase across all loan types as interest rates decrease and customer consumption and investment demand recover. Although the loan quality of commercial industrial loans for large and medium-sized enterprises remains almost unchanged, the quality of most loan types is expected to deteriorate, with concerns about increased default and bad debts.
In an interview on the 4th, Federal Reserve Chairman Powell stated that although losses related to commercial real estate may continue to occur, he believes there will be no financial crisis. In addition, US Treasury Secretary Yellen stated at a House hearing on the 6th that regarding commercial real estate, although refinancing in a high-interest rate environment and rising vacancy rates due to changes in employment patterns have brought enormous pressure to property owners, it is still controllable with the support of banking regulatory agencies. At present, the financial market has not seen any signs of concern about the instability of the financial system. Some local banks in the United States holding large amounts of commercial real estate bonds are aware of the risk of high credit costs but are still observing future trends.