Willingness of Banks to Lend Money Hits 17-year High
Banks are ready to lend money once again. According to the Federal Reserve’s Senior Loan Officer Opinion Survey on Bank Lending Practices released yesterday, their willingness to make consumer loans rose to its highest level since 1994.
In the credit card industry, banks appear eager to approve credit card applications for new customers, but consumers do not appear to be as anxious to apply.
About 20 percent of banks reported having eased standards for approving credit card applications. However, consumer demand for credit card remained flat, so only a small fraction of banks reported an increase in the number of credit card applications over the past three months.
Here are some findings of the quarterly Loan Officer Survey which was conducted in April 2011:
* 20.5 percent of all banks say lending standards for approving credit card applications has eased somewhat. That’s more than twice the percentage that relaxed standards in the fourth quarter of 2010.
* The outlook was even brighter at large banks where 34.8 percent say lending standards for approving credit card applications has eased somewhat.
* But consumer demand for credit cards showed no net change. 8.3 percent of banks reported demand for credit card loans was stronger, but 11.1 percent of banks reported that demand for credit card loans was weaker.
* There has not been any net change in credit limits: 5 percent of large banks reported they have tightened credit limits while 5 percent have eased credit limits.
* 10 percent of large banks have eased the minimum required credit score.
* 11 percent of all banks reported that the overall credit quality for credit card applicants has improved.
There is a cycle to this. Credit card delinquencies and defaults continue to fall, reducing the risk of lending. This gives banks room to lend again. But consumers seem reluctant to once again take the credit card plunge. Many consumers are still stinging from using too much credit before the economic downturn.
The quarterly Senior Loan Officer Opinion Survey is based on responses from 55 domestic banks and 22 U.S. branches and agencies of foreign banks.