Thursday, September 19, 2013

US corporate credit growth slowing

One bright spot in the story of US loan growth since the recession has been corporate credit. Loans to companies had experinced relatively light default volumes and banks grew this part of their balance sheets faster than other types of credit. But even the corporate sector loan volume has barely kept up with bank deposits. The so-called "loan - deposit ratio" growth for corporate loans has been tepid.  Moreover, this ratio seems to have peaked this summer. 

Even on an absolute basis (as opposed to fraction of deposits), growth in loans to companies continues to slow. Part of this is driven by poor demand for credit from stronger firms who are hoarding cash. Some of the slowdown is due to banks' reluctance to underwrite weaker credits due to regulatory capital constraints. Whatever the case, the downward trend, which started about a year ago,  remains intact.
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