By Jerry GarnerA Government report released on Monday provided a bleak outlook for 2007 in reference to most types of loans, including citing a weakening demand for small business loans and other commercial development loans. The report, released by the U.S. Federal Reserve, also hinted that credit quality is likely to suffer for both businesses and consumers.
The Fed study was based on a survey of 57 domestic banks, and 22 foreign banks with U.S. branch offices. One of the banks included in the study is Ashwaubenon-based Associated Bank.
"It's a tight credit cycle right now," stated Gordy King, Executive Vice President and Chief Credit Officer for Associated Bank. "There is a general slowdown in lot and lot development loans," King continued.
In reference to the outlook for credit quality in 2007, the Fed said, “Considerable net percentages of both foreign and domestic institutions reportedly expect credit quality on loans to businesses and households to deteriorate somewhat in 2007.”
The Fed continued to comment that the percentage of banks expecting a deterioration in credit quality had increased from the numbers quoted in the 2006 survey.
Of those surveyed, 45% expect to see a decline in the quality of loans to business clients, whether it is for real estate or other business loans. A total of 35% of the domestic banks expect to see a decline in the quality of consumer loans, including credit card debt.
U.S. banks also indicated that demand for mortgage loans continued to weaken over the past three months. At least 15% of U.S. banks have tightened credit criteria for residential mortgages as a result of the weaker demand. This is the largest percentage of banks to tighten credit terms for these types of loans since the early 1990s.
However, the Fed loan study may not be an entirely accurate representation of what to expect for 2007. The economic figures for the fourth quarter show that the U.S. economy grew by 3.4 percent during that period. This exceeded analysts predictions, and a continued trend could lead to larger demand for various types of bank loans.
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2 comments:
I thought the market was for buyers. Interesting that mortgage loans declined.
I wonder if buyers are waiting a little more until sellers can't hold it:)
My assumption would be that if the demand is slipping, then that gives the buyer leverage. I think the issue with the mortgages is the credit quality factor. It seems that banks are expecting more loans to go delinquent, so they are tightening up the credit criteria, thus making it more difficult to get the loan. But if you can pass that criteria, there are probably some very good deals to be found.
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