Bank economists are starting to sour on the possibility of robust loan growth for the rest of the year, as higher interest rates and a decelerating economy cause credit availability to tighten.
The American Bankers Association’s credit conditions index fell by 20.1 points to 20.8 in the third quarter, well below the threshold of 50 above which credit conditions are improving. The index reflects the views of chief economists at some of the country’s largest banks.
The drop isn’t surprising given that the Federal Reserve’s rate hikes are intended to dampen growth somewhat, and a slowing economy may bring less demand for loans and a pullback in banks’ credit offerings, said ABA Chief Economist Sayee Srinivasan.
Most bank economists “remain cautiously optimistic about the trajectory of the U.S. economy over the remainder of the year,” Srinivasan said, pointing to healthy consumer demand, business investment and a strong job market.
But “Russia’s invasion of Ukraine and China’s ‘zero-COVID’ policy are adding to inflationary pressures and increasing economic uncertainty,” Srinivasan said in a press release.
The more cautious tone is in line with the worries that bank CEOs have expressed in recent weeks. The sharpest concerns have come from JPMorgan Chase CEO Jamie Dimon, who
Other CEOs have been less dour but still see growing risks of a recession. Goldman Sachs CEO David Solomon
Bank of America CEO Brian Moynihan, meanwhile, said last week the Fed has a “tough job” ahead, though he was far less glum than Dimon. “We're in North Carolina. You've got hurricanes that come every year,” Moynihan said.
The ABA report found major deterioration in the outlook for business credit, as companies continue facing high inflation, supply-chain disruptions and challenges in finding workers. The Business Credit Index fell 24.4 points to 18.8, and all but two of the 16 bank economists thought businesses’ credit quality would deteriorate.
The index showed a smaller — yet still significant — drop in the consumer credit outlook. The ABA’s consumer credit index fell 15.7 points to 22.9, with half of the economists on the panel expecting credit availability to fall this year and only one expecting it to rise.
Though some large-bank CEOs have already shared their worries, regional bank leaders are likely to “reiterate their strong existing outlooks” in the coming weeks even as they add hints of concern, Piper Sandler analyst Scott Siefers wrote in a note to clients.
“We expect more cautious tones regarding the sustainability of excellent credit trends and how long the lending recovery will last,” Siefers wrote, adding that “today's strong outlooks could be tempered the further out we look.”
