Thursday, May 21, 2009

Worst of credit crunch behind us

Financial Post
Posted: May 05, 2009, 12:30 PM by David Pett

Give some credit where its do. At least that is what the banks are getting closer to doing in a signal that the worst of the credit crisis is past us. The quarterly Senior Loan Officer Opinion Survey by the Federal Reserve Board in the U.S. released yesterday shows that banks tightened the vice on borrowers more slowly at the start of this year.

The credit crunch is therefore easing and the Loan Officer survey is confirming what the stock market is already telling you-- that the worst is likely past us. What the stock market does not suggest, however, is that credit is still very tight. About 40% of respondents to the April survey have tightened standards for industrial and commercial borrowers down from 65% in the January survey.

The survey also confirms separate reports by top bank analysts that banks will continue to experience charge offs on credit card and commercial loan portfolios. Roughly 60% of respondents reported tighter lending standards for credit card borrowers, and 65% of banks surveyed reported tighter lending standards for commercial real estate borrowers. More than 90% of respondents indicated that loan quality will deteriorate on these loans books.

Loan demand for residential mortgages was up sharply in the first quarter according to the survey-- most probably due to recent higher mortgage refinancing, reports Goldman Sachs—as a result of government policy that has raised the loan-to-value ratio for homeowners eligible to refinance loans and to Fed policy that has driven down mortgage rates for conforming loans.
Levi Folk

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