DESPITE STRUGGLING ECONOMY, BANKS
ARE LENDING
~ Banks Initiated
Roughly $1.6 Trillion in New Lending Over the Past 12
Months ~
January 2012
(Washington, D.C.) – After
several years of recession and a still weak economy,
borrowers may be under the impression that all bank
lending has dried up. While borrowers are being more
cautious in taking on new debt in today’s fragile economy,
both banks and their regulators are understandably more
cautious in today’s environment too, as the risk of
lending is much greater today than before the recession.
But that doesn’t mean there isn’t lending taking place.
Many areas of the United
States continue to struggle under the weight of poor
growth and weak labor market conditions. Since banks
are a reflection of their communities, they are suffering
right along with the communities they serve. Business
failures and unemployment have impaired credit quality
and increased loan losses. As a result, capital – which
underpins every loan made by banks – has been stressed.
Yet even in areas beset by
poor economic conditions, there are very strong borrowers.
Weak demand from credit-worthy borrowers, regulatory
pressure to build capital-to-asset ratios, and loan
losses are pressures banks are facing when considering
new lending. Importantly, while the overall loan volume
has remained mostly level over the past year, it does
not indicate that banks have stopped lending altogether.
In fact, taking into account
reserves set aside for losses and the natural repayment
of loans each year, banks initiated roughly $1.6 trillion
in new lending over the past 12 months. Despite many
headwinds – such as over 100,000 business failures and
over eight million jobs losses – banks are prudently
seeking borrowers. Given these headwinds, it is remarkable,
in this context, that banks were able to originate this
volume of new loans.
Sales remain the top concern
for businesses. Without strong sales prospects, businesses
lack the need to hire more workers, grow production,
and invest in new products. However, early signs of
recovery in business loan demand are present. To help
small businesses, the American Bankers Association is
releasing valuable banking tips and information aimed
at increasing the chances of qualifying for a small
business bank loan.
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