Experts are facing a puzzle when it comes to business-loan lending. Loans have dropped to their lowest levels since the days following the financial crisis a decade ago — but no one seems to know why exactly this is happening.
Overall, banking lending to companies increased by only 1.1 percent in 2017 year-on-year. The average weekly rate of business-loan growth was 2.7 percent for 2017 through Dec. 20, compared with 9.3 percent the previous year — and double digit growth in both 2015 and 2014. This is the opposite of the expected outcome — a year ago, conventional wisdom was that Donald Trump's election and avowedly pro-business policy set would push a big bump in corporate borrowing.
But bankers aren’t seeing it so far. They are, in fact, seeing the opposite effect.
So, what's going on? Some analysts think this slowdown is just a natural economic function of business lending normalizing after a decade of turmoil. Others, however — particularly those employed by banks — have a more optimistic take: consumers aren't changing so much as they are waiting for a better time to borrow. They believe that has created pent-up demand for loans that could be released literally any day. Still others are hopeful that the rate will see a shot of adrenaline when the tax-code reform goes into effect and the “floodgates open.”
“They have been waiting for some certainty here to figure out what to do to plan across three- to five-year periods, which they as entrepreneurs and CEOs have to do. So I think it will unleash some activity, no question,” Bank of America Corp. Chief Executive Brian Moynihan said of the tax changes in early December before the final bill was unveiled.
Others are less bullish.
“I’m not sure how much pent-up demand there is,” Harris Simmons, chief executive of Salt Lake City-based Zions Bancorp, said in December. “The lack of loan demand mystifies me somewhat.”