Credit Conditions Expected to Weaken This Year: Bank Economists

Source: American Banker

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.