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  • Bank economists see tighter credit for businesses, consumers
  • Survey was taken after recent banking stress, trade group says

US credit conditions for consumers and businesses are expected to deteriorate in the next six months to their worst level since the pandemic, according to a survey of chief economists at 15 of the nation’s biggest banks.

The American Bankers Association said on Thursday that its credit conditions index fell to 5.8 in the second quarter from 12.5 in the first quarter.  A reading below 50 in the gauge – which is derived from answers to the survey — indicates that the economists forecast weaker credit conditions in the coming six months.

The economists “expect banks to tighten credit standards this year in reaction to still-elevated inflation and higher interest rates leading to weaker growth in consumer spending and business investment,” the ABA said in a press release.

Credit conditions are under heightened scrutiny following the collapse of Silicon Valley Bank. The recent turmoil in the banking sector is also affecting the Federal Reserve’s quest to curb inflation, which it’s trying to control without triggering a recession.

The survey was conducted after “recent stress in the banking sector,” the ABA added. It asks the economists a variety of questions, including whether they expect consumer and business quality and availability to improve, stay the same, or deteriorate. 

All 15 economists see credit becoming less available for businesses over the next six months while almost all anticipate the same happening for consumers, the association said.

“ABA’s latest Credit Conditions Index recognizes that recent strong credit quality will be challenged by heightened uncertainty and broader economic headwinds this year,” ABA Chief Economist Sayee Srinivasan said in the press release. “Lenders are responding with cautious and prudent underwriting.”

The ABA’s Economic Advisory Committee – from which the survey was drawn — is comprised of economists from leading banks, including JPMorgan Chase & Co., Bank of America Corp. and Morgan Stanley.

Written By:  @Bloomberg.com

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