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Tuesday, August 18, 2009

Credit Continues to Ratchet Tighter

Biz Journals reported yesterday:

Banks across the nation made fewer business loans in the second quarter, largely because of weaker loan demand and deteriorating creditworthiness, according to a quarterly Federal Reserve survey of senior loan officers released on Monday.

A smaller percentage of banks tightened loan standards in the May-through-July period, compared with the last survey, released in April. But loan demand was down in every category except prime residential mortgages, which are home loans to the most creditworthy borrowers, according to the survey.

About 45 percent of U.S. bankers reported weaker demand for commercial and industrial (C&I) loans from large firms during the period, and 55 percent indicated weaker demand from small firms. That was down slightly from the last survey, in which 60 percent of loan officers reported weaker demand for C&I loans from large firms and 65 percent saw weaker demand from small firms.

The bankers that reported weaker C&I loan demand unanimously cited customers’ shrinking need to invest in plant or equipment as the reason, according to the survey. Other key reasons included decreased needs to finance inventories, accounts receivable, and mergers or acquisitions.
When looking at the below chart it is important to note that anything above zero indicates continued tightening. Thus, while the recent period showed that not as many banks were tightening as in the previous period, overall credit is still tighter relative to that period (some media outlets seem to think this equals improvement in available credit... it doesn't.)

Source: Federal Reseve