Supply Side Credit: U.S. Banks Report Stable Conditions

by Steve Murphy 0

Cash

This indicated piece is a tertiary summary of the recently released quarterly senior loan officer survey report from the Fed, specifically around Q4 2017, with the secondary report coming from Wells Fargo Securities.  The main news is the apparent easing of credit standards for commercial and industrial loans (C&I) in response to increased demand and competitive pressure.  The underlying reason is believed to be increased capital spending, causing demand pressure for new funding sources.

Increased demand is likely attributable to the rise in business fixed investment, specifically the surge in capital spending in the second half of 2017. With equipment spending up 10.8 percent and 11.4 percent in Q3 and Q4, respectively, the surge in investment likely contributed to the increased demand banks experienced for C&I loans over the period.

 In various reports during the past two years, Mercator has been citing the need for companies to improve working capital efficiency and effectiveness as higher business growth returns and the easy money scenarios since the 2009 timeframe begin to change.  On the industrial side, there have been large cash holdings and high growth in debt from 2010-2017.  With Fed Funds targeted at 1.5 % and some expected increases, we may be heading back towards more historical rate levels, which creates a more competitive lending environment, but also highlights the need for better working capital management.

The article goes on to discuss CRE loan demand and potential consumer credit performance deterioration in 2018.

Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group

Read the quoted story here