Lending Metrics, Part II: Are Businesses Borrowing?

In Part I of this series of posts on lending metrics, we looked at the use of lending volumes to indicate whether or not banks are lending, arguing it is a poor indicator of current lending. A closer look that breaks down the numbers reveals that banks initiated roughly $1.2 trillion in new loans in 2009 – a remarkable accomplishment in difficult economic times.

Today we’ll look at loan demand – the metric that illustrates whether people and businesses are borrowing. According to the Federal Reserve, banks have been experiencing a deep fall off in loan demand (see the chart below) – no surprise during this, or previous recessions. High levels of unemployment clearly are affecting consumer loan demands; businesses as well either do not want to take on additional debt or are not in a position to do so, given the falloff in their customer base.

The decline in loan demand continues, but there are fewer banks reporting a falloff of demand. And some positive signs are beginning to appear, as more small businesses are returning to test the market for loans, even though they may not wish to borrow at the moment. It will take time for this renewed interest to be translated into new loans made, however. In fact, our research shows that it typically takes 13 months after the recession for business confidence to return and credit to return to pre-recession levels.



Also see Lending Metrics, Part I: Are Banks Lending?
And Lending Metrics, Part III: Are Businesses Using Available Credit?