Business loans in the US are growing at their fastest rate for three years. Although encouraging, recent data needs to be considered in context.
After nearly two years of decline, November marked the ninth consecutive year-on-year rise in commercial and industrial loans. Lending growth in the third quarter, at a seasonally adjusted annual rate of almost 10%, registered the highest rate since the same quarter in 2008.
Still, the absolute level of business loans is 18% lower than its high in late 2008. And the ratio of banks’ cash holdings to loans remains well above pre-crisis levels. The last time we looked at this ratio, in January, American banks appeared to be opening the taps; the cash-to-loans ratio only briefly tipped above 100% before falling back.
Since then, as the euro debt crisis worsened and volatility reigned, lenders hoarded cash more enthusiastically than ever before. Although credit conditions may be easing, banks are hardly lending freely; lenders are setting aside US$1.16 in cash for every US$1 in business loans. This is down from an all-time high of more than US$1.50 in the summer, but hardly a sign of generosity on the part of loan officers.
The EIU's Financial Services Briefing delivers a complete picture of the finance industry in markets around the world, combined with five-year forecasts of key sub-sectors.