Many Banks See Tight Credit for Years into Future

By Borak, Donna | American Banker, November 9, 2010 | Go to article overview

Many Banks See Tight Credit for Years into Future


Borak, Donna, American Banker


Byline: Donna Borak

WASHINGTON - Though banks surveyed by the Federal Reserve have reported a gradual loosening of credit standards in recent quarters, it may be a while before lending standards return to normal.

Large banks were primarily responsible for the easing reported in July, the central bank said Monday in its third-quarter Senior Loan Officer Opinion Survey on Bank Lending Practices.

But substantial fractions of the banking industry said they do not expect standards for many lending categories to return to their longer-run averages in the foreseeable future.

According to the October report, 10 out of 52 banks, or 19.2% of the respondents, anticipated that loan standards would remain tight in the foreseeable future when it comes to commercial and industrial lending to large and middle-market companies that have annual sales of $50 million or more.

Other banks in the survey divided on when an easing might occur. Eight banks each anticipated this would happen in the first half of 2011 or in 2012. An additional three banks said lending conditions would not improve until after 2012.

But five banks predicted that C&I lending standards would return to normal in the first half of 2011 for smaller companies, those with annual sales of less than $50 million. Of the remaining banks surveyed, a substantial number said they anticipated an improvement in the second half of 2011 or in 2012.

Fourteen respondents said they expected standards to remain tight for the foreseeable future, and 15 said standards are at their average level now.

For loans secured by commercial real estate, a number of respondents expected no improvement earlier than 2012, and most anticipated a slower recovery.

Asked whether lending standards would remain tight for the foreseeable future, 56.6% of respondents said they would. Nine others said standards would not return to normal until after 2012, and eight said they expect credit standards to normalize during that year. None said they foresaw normal standards for commercial real estate loans for construction and land development purposes at any point in 2011. …

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Many Banks See Tight Credit for Years into Future
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