Banks remain cautious with businesses - BoA: Increased demand for financing has not been accompanied by more loan approvals
Unlike individuals, banks have been more “strict” in granting loans to businesses during the second quarter. Lending standards remained almost unchanged in loans to large businesses, to cover liquidity needs and finance investments, but were somewhat eased in loans to small and medium-sized businesses.
Lower costs and constraints from the balance sheet and competition in the banking system contributed to the easing of standards, while factors related to banks' perception of risk contributed to the tightening.
This easing of lending standards for small and medium-sized businesses is expected to continue in the third quarter, while they will remain unchanged for large businesses.
On the other hand, the general terms and conditions on new loans disbursed to businesses did not change in the second quarter. The margins applied on risky loans were reported to be higher, but the net balance of this indicator was lower than in other quarters.
In the judgment of banks, the increased pressure from competition in the banking system has made them display a higher tolerance towards taking on risk. Both of these indicators, although with minimal net balances, positively supported the terms and conditions of lending to businesses.
While business demand for credit was reported to be increasing, the approval rate was reported to be unchanged in the second quarter.
The increase in credit demand was supported by higher needs for financing investments and working capital inventories. Also, in the judgment of banks, business confidence indicators and the general level of interest rates were factors that supported the expansion of credit demand in this quarter. On the other hand, the current economic situation and expectations for it, as well as the use of internal sources of financing, influenced the downward trend in business credit demand in the second quarter.
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