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US banks ease loan standards in battle to lend

What’s New in US Banks

Bank lending standards eased at a record pace in the second quarter as loose monetary policy and continued economic recovery fueled lending competition.

According to UBS analysts, net 25% of banks relaxed lending standards for both consumer and small business loans in the second quarter, based in part on data from the Federal Reserve Board of Governors. .. It shows a record pace of credit easing, based on data dating back to the turn of the millennium.

Federal Reserve Board I got it Bankers who responded to a senior loan officer’s survey of lending practices in July reported that commercial and industrial loans are “currently at the easier end of the 2005-to-present reference range.”

The fierce competition between banks and other lenders to provide new lending has contributed to a significant increase in global debt since the outbreak of the pandemic.

When the coronavirus broke out last year, companies initially stopped using emergency bank lending facilities, boosting lending growth. However, government and central bank support has created a wave of demand among investors to lend to businesses, allowing consumers to use stimulus to repay their debt.

Result is Decrease in consumer loans Credit card and corporate loan shifts, etc. Away from the bank We are still benefiting from record fees for arranging debt transactions for public and private investors.

UBS data shows that banks are relaxing the requirements for lending to consumers and small businesses. Revenue report It revealed that banks are having a hard time starting new businesses.This was amplified concern Race to the bottom of credit standards already exists in the fixed income and loan markets.

However, default rates remain low among bankers, analysts, rating agencies and investors so far, and even the most risky borrowers are likely to repay debt backed by supportive monetary policy. there is.

UBS analyst Matthew Mish said tensions between high-risk lending and optimism over repayments created a “tug of war.” “It’s not positive to see signs of bubbling, high-risk, low-quality issuance in the market. The opposite argument is that if the Fed keeps interest rates low, it’s likely to outweigh the excess buildup. That is. “

Interest rate levels are important to the ability of both businesses and consumers to take on more debt, and the lower the cost of borrowing, the less money is needed to repay a loan, and usually fewer defaults.

S & P Global Ratings predicts that the default rate for low-rated “speculative grade” companies over the past 12 months will drop from nearly 4% today to just 2.5% by June 2022, a rating upgrade Is about twice as high as downgrade. So far this year has been 3 to 1.

Mish said that nominal US Treasury yields, given many lending rates, are broadly correlated with high-risk corporate debt default rates, and the long-term decline in yields over the last few decades has led to debt repayment companies. Said that it corresponds to the decrease in the number of people.

“Whether you like the Fed’s policies or not, the net effect of the Fed’s policies is to curb default rates, so people worried about bubbling and risk-taking may be worried for a while,” he said. I added.

US banks ease loan standards in battle to lend Source link US banks ease loan standards in battle to lend

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