Survey: Banks Expect Static Loan Market, With A Twinge Of Optimism

What should you expect from the loan industry in 2013?

Pretty much the same as you saw in 2012. That’s one finding from the Federal Reserve Board’s latest survey on bank lending practices: a compilation of response from 68 domestic banks and 22 bank branches compiled every quarter since 1997.

The report covers banks opinions on everything from their financial optimism, to European competition to commercial real estate lending, and offers an interesting look at how the loan business may play out in the year ahead. takes a look at the numbers you need to know in this Data Point.

Loan Quality

Banks were asked to assess their outlook for delinquencies and chargeoffs on their commercial and industrial (C&I) loans assuming that economic activity progresses in line with current forecasts.  Large and middle market firms felt as though their loan quality would stabilize around current levels, as 63.6 percent opted for this response. An additional 27.3 percent said they were likely to improve somewhat, while 9.1 percent said some deterioration was likely.

For small firms, the results differed. Fifty percent said they thought their C&I loans would stabilize, but another 40 percent indicated they’d slightly worsen. Only one percent saw their loans as likely to improve. It’s interesting that neither group picked “improve substantially” or “deteriorate substantially” even once. 

European Banks

Banks were also asked the extent to which they had experienced an increase or decrease in business thanks to competition from European banks over the past three months. Around half of all large banks (48.5 percent) said they’d experienced a decrease in European competition, but that it hadn’t appreciably increased their business. Just 9.1 percent of small and medium banks responded with the same answer.

A total of 15.2 percent of respondents said they’d seen a decrease in competition that resulted in an increase in business, but that came solely from the big banks, with over 30 percent indicating they’d profited from the European lag.

Only 6.1 percent of large banks felt they’d seen an increase in European competition, and only 3 percent of small banks agreed. Predictably, 87.9 percent of small and medium banks said they didn’t compete with European banks, while only 15.2 percent of large banks said this was the case.

To read more statistics on the state of the loan industry, read the Fed’s full report here.

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