U.S. banks expect credit quality to rise in 2013 after they eased standards on loans for autos and businesses of all sizes, according to a Federal Reserve survey.
“Banks expect improvements in credit quality in most major loan categories” in 2013, the central bank said today in its quarterly survey of senior loan officers released in Washington. The number of banks with such an expectation was described as “moderate to large.”
Business lending standards were “eased somewhat for all firm sizes” and banks “again eased standards on auto loans,” the Fed said in its report. Standards for mortgages and credit card loans were little changed, the survey said.
The report bolsters the Fed’s view that a slump in economic growth during the fourth quarter was temporary, and that record- low interest rates will help fuel the recovery as credit thaws. The Fed said last week growth “paused,” following a report that the economy shrank at an annual rate of 0.1 percent in the fourth quarter.
“Credit conditions are still tight but they’re certainly much easier than they were just a couple years ago,” said Dana Saporta, a U.S. economist at Credit Suisse Group AG in New York. “It’s not as much of a drag as it was.”
The Federal Open Market Committee said in a Jan. 30 statement that growth will “proceed at a moderate pace and the unemployment rate will gradually decline.”
The survey of loan officers at 68 domestic banks and 22 U.S. branches and agencies of foreign banks was conducted from Dec. 27 to Jan. 15, the Fed said. The report didn’t identify respondents.
Banks expect to see “improvements in delinquency and charge-off rates during 2013 for most loan categories included in the survey,” the Fed said. Business loans, commercial real estate loans, and residential mortgages are all expected to improve.
The Fed said the fraction of banks expecting further improvement in credit quality in 2013 was about the same as the share that had foreseen improvement for 2012.
“Among major loan categories, domestic banks were least likely to expect improvement in the quality of consumer loans in 2013,” the report said.
Demand for business loans, prime residential mortgages, commercial real estate lending and auto loans strengthened, the survey showed. Increasing competition to make loans to businesses has forced banks to lower their standards, according to the survey.
“Almost all respondents that reported having eased either standards or terms over the past three months cited more- aggressive competition from other banks or nonbank lenders as an important reason for having done so,” the Fed said.
U.S. stocks fell, driving the Standard & Poor’s 500 Index to its biggest decline of the year, on concern that the European debt crisis may intensify. The S&P 500 fell 0.9 percent to 1,499.96 at 2:43 p.m. in New York. The yield on the 10-year Treasury note fell 0.04 percentage point to 1.97 percent.
The report was prepared for the Jan. 29-30 meeting of the FOMC, at which the central bank maintained its $85 billion a month of mortgage-bond and Treasury purchases designed to propel the economy toward full employment.
Boston Fed President Eric Rosengren, an FOMC voter this year, sees Fed accommodation working, citing recent improvement in the housing market and auto sales.
“The most interest-sensitive sectors have been responding to the monetary stimulus from the Fed, and this stimulus has provided a major source of strength for the economy last year,” Rosengren said in a Jan. 15 speech in Providence, Rhode Island. “And it is likely to be a source of support in 2013.”
Carmakers sold 15.23 million vehicles at an annual pace in January, up 9.6 percent from a year earlier.
The auto industry is poised for further growth as the need to replace old vehicles, combined with low borrowing rates, will fuel continued sales, said Jim Lentz, the U.S. sales chief for Toyota Motor Corp. at a Deutsche Bank conference last month.
“There is pent-up demand with an average age of the U.S. fleet hitting a record high of 11 years old,” Lentz said. “Car loans are at historically low rates.”
Mortgage rates reached the lowest on record in November, when the average 30-year mortgage had a fixed rate of 3.31 percent, according to a Freddie Mac index. The rate has risen to 3.53 percent as of January 31.
New housing starts climbed to 954,000 units at an annual rate in December, according to Commerce Department data. The gauge of new home construction is at the highest level since June 2008.
Confidence among U.S. homebuilders held in January at the highest level in more than six years, offering the latest evidence that residential real estate will help spur economic growth, according to the National Association of Home Builders/Wells Fargo index of builder confidence.
The central bank’s key gauge of progress is the labor market, which added 157,000 jobs in January, according to a Feb. 1 report. The unemployment rate climbed to 7.9 percent. Joblessness has hovered at 7.8 percent or 7.9 percent for five consecutive months.
The S&P 500 Index rose 1 percent the day of the jobs report to 1,513.17, the highest closing level since December 10, 2007.
The recovery in housing is boosting both financial institutions and homebuilders. The Standard & Poor’s 500 Financials Index of 81 companies is up 18 percent in the past 12 months, compared to 12 percent for the S&P 500 Index. The S&P Supercomposite Homebuilding Index is up 68 percent over the same period.
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