Despite Hints of a Double-Dip, Banks Loosen Lending Standards

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NEW YORK (MainStreet) -- A new report by Philadelphia-based Phoenix Management shows that banks are finally easing off the brakes on consumer loans. The numbers aren’t out of this world, but they’re better than what we’ve seen since 2008. And that’s saying something considering the stock market, which was down 266 points on Tuesday, is acting a lot like it was in 2008.

Consumers might want to do a double-take on the Phoenix study. Most Americans seem to think that the U.S. economy is still (again?) in recession. A survey out this week from Texas-based research firm First Command concludes that 63% of middle-class consumers think a drop back into a double-dip recession is a foregone conclusion. That’s a big spike northward from the same study last summer, in which 50% of Americans thought the U.S. was in a recession.

“Americans aren’t looking for a meaningful recovery anytime soon,” notes Scott Spiker, CEO of First Command Financial Services, Inc. “Our index reveals a widespread belief that the U.S. has already experienced a recession and a short-lived recovery and is now experiencing a second recession. This conviction is being fueled by a host of pressing economic worries that do not come with quick resolutions, further intensifying consumer uncertainty and concern.”

Interestingly, 48% of Americans say that slow consumer spending was a big problem adding to the recession-like environment, while another 41% cited “low consumer confidence” as a big reason.

Both of those numbers will likely drop if the Phoenix study is on the mark. The study, “Lending Climate in America,” says there are “encouraging signs” on the consumer lending front, though it does admit that demand is lower than it has been in recent years. Phoenix offers the following evidence supporting its claim:

  • Lenders planning to relax their loan structures increased to 21%, 4% higher than the previous quarter.
  • 40% of lenders indicated their financial institution would consider a loan request, up 17% from the previous quarter.
  • 39% of respondents anticipate easing lending spreads from their current levels versus 27% the previous quarter.
  • Respondents indicated that, on average, for all domestic lending categories, 56% have expectations for increased loan demand versus 64% in the prior quarter.

“This quarter’s survey indicates that the lending community is returning to an aggressive stance towards loan structures as lenders are refocusing their efforts on gaining market share—making it somewhat of a borrower’s market,” explains Michael Jacoby, Phoenix’s senior managing director. “This should provide a welcome change from the past few years when borrowers experienced significant difficulty in obtaining replacement financing and working capital lines of credit to finance growth and/or the execution of turnaround plans.”

Some of the Phoenix bank lending data seem to come from a forward-looking lens. During the next six to 12 months, lending analysts tell Phoenix they expect moderate economic improvement, or at least enough to relax some lending standards.

That could give U.S. consumers enough wiggle room to get a loan deal—and boost the U.S. economy in the process.

—For continuing coverage of the banking climate, check out MainStreet’s Credit Power Index for the latest data!

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