United States: Weak financing demand and continued strict financing standards
2024-05-10
■ Financing standard DI has tightened for three consecutive quarters
■ If DI continues to decline, it may lead to a deterioration of the company's profit outlook
The Federal Reserve's release of the latest Senior Loan Officer Opinion Survey (SLOOS) on the 6th is significant. This quarterly survey, conducted by the Federal Reserve on US financial institutions, provides crucial insights into changes in financing standards and funding requirements. The survey respondents received the questionnaire on March 25th and answered the survey before April 8th.
The DI (demand increase ratio minus demand decrease ratio) for commercial loans for large and medium-sized enterprises (annual sales exceeding $50 million) is -26.6, a decrease from the previous survey (25.0), indicating a reduction in financing demand. The financing standard DI (tightening ratio minus relaxation ratio) is +15.6, which has increased for three consecutive quarters compared to the last survey (+14.5), indicating a tightening of financing standards. In the past three months, most of the responses indicated that there has been no change in financing needs and standards, and there have been almost no responses indicating an increase in financing needs or relaxation of financing standards. The background of sluggish financing demand includes corporate mergers and acquisitions (M&A) and reduced demand for inventory and equipment investment. In contrast, the reasons for tightening financing standards include uncertainty in the economic outlook and decreased risk tolerance. Despite weak financing demand and strict financing standards, the tightening trend seems to be controlled. It should be noted that the financing standard DI has a leading effect on corporate profits. According to data from financial information company Refinitiv (as of the 3rd), the expected earnings per share (EPS) growth rate of companies in the S&P 500 index for the entire year of 2024 is 9.6%, which has rebounded from the first half of April (9.3%). In this situation, if the financing standard DI continues to rise (tightening financing standards), it may imply that the deterioration of EPS prospects will drag stock prices, so caution needs to be maintained.
In this survey, SLOOS also inquired about the changes in the bank's credit policies for commercial real estate loans over the past year. The responses revealed that most banks have tightened their loan conditions, including increasing loan spreads and lowering loan limits. These changes were attributed to rent, vacancy rates, and uncertainty in commercial real estate prices. The reasons for the decrease in financing demand include increased interest rates and reduced property purchases and development. In contrast, the reasons for the rise include refinancing from nonbank institutions and a decrease in customer-owned funds, indicating that the financial tightening effect has become apparent.
■ If DI continues to decline, it may lead to a deterioration of the company's profit outlook
The Federal Reserve's release of the latest Senior Loan Officer Opinion Survey (SLOOS) on the 6th is significant. This quarterly survey, conducted by the Federal Reserve on US financial institutions, provides crucial insights into changes in financing standards and funding requirements. The survey respondents received the questionnaire on March 25th and answered the survey before April 8th.
The DI (demand increase ratio minus demand decrease ratio) for commercial loans for large and medium-sized enterprises (annual sales exceeding $50 million) is -26.6, a decrease from the previous survey (25.0), indicating a reduction in financing demand. The financing standard DI (tightening ratio minus relaxation ratio) is +15.6, which has increased for three consecutive quarters compared to the last survey (+14.5), indicating a tightening of financing standards. In the past three months, most of the responses indicated that there has been no change in financing needs and standards, and there have been almost no responses indicating an increase in financing needs or relaxation of financing standards. The background of sluggish financing demand includes corporate mergers and acquisitions (M&A) and reduced demand for inventory and equipment investment. In contrast, the reasons for tightening financing standards include uncertainty in the economic outlook and decreased risk tolerance. Despite weak financing demand and strict financing standards, the tightening trend seems to be controlled. It should be noted that the financing standard DI has a leading effect on corporate profits. According to data from financial information company Refinitiv (as of the 3rd), the expected earnings per share (EPS) growth rate of companies in the S&P 500 index for the entire year of 2024 is 9.6%, which has rebounded from the first half of April (9.3%). In this situation, if the financing standard DI continues to rise (tightening financing standards), it may imply that the deterioration of EPS prospects will drag stock prices, so caution needs to be maintained.
In this survey, SLOOS also inquired about the changes in the bank's credit policies for commercial real estate loans over the past year. The responses revealed that most banks have tightened their loan conditions, including increasing loan spreads and lowering loan limits. These changes were attributed to rent, vacancy rates, and uncertainty in commercial real estate prices. The reasons for the decrease in financing demand include increased interest rates and reduced property purchases and development. In contrast, the reasons for the rise include refinancing from nonbank institutions and a decrease in customer-owned funds, indicating that the financial tightening effect has become apparent.