ABA report: Bank economists expect credit conditions to tighten

Bank economists expect credit conditions to weaken over the next six months as economic growth slows and interest rates trend higher, according to the American Banker Association’s latest Credit Conditions Index released today. The quarterly outlook is produced by ABA’s Economic Advisory Committee, which includes chief economists from North America’s largest banks. Readings above 50 indicate that, on net, the bank economists expect business and household credit conditions to improve, while readings below 50 indicate an expected deterioration.

The Headline Credit Index fell in the second quarter to 5.8, decreasing 6.7 points to its lowest point since the onset of the pandemic. The reading indicates broad-based expectations for weaker credit market conditions over the next six months among bank economists. It also indicates that banks are likely to grow more cautious about extending credit. The Consumer Credit Index fell 7.9 points to 5.8, with EAC members expecting credit availability to deteriorate more than credit quality, though almost all expect both to decline. The Business Credit Index fell 5.6 points to 5.8, with all EAC members expecting business credit availability to deteriorate in the next six months, and most expecting business credit quality to deteriorate.

“ABA’s latest Credit Conditions Index recognizes that recent strong credit quality will be challenged by heightened uncertainty and broader economic headwinds this year,” said ABA Chief Economist Sayee Srinivasan. “Lenders are responding with cautious and prudent underwriting.”