Business access to bank loans is poised to improve as lenders get losses under control and upgrade their economic outlook, while borrowers strengthen their financial condition. The result will be a virtuous circle: easier credit stimulating economic activity, which feeds back to still easier credit. This can’t go on forever, of course. But the self reinforcing dynamic has at least a year to run.
First, let’s get the bad news out of the way: Bank losses remain huge. The industry racked up a whopping $187 billion in losses last year, amounting to 2.9% of loans outstanding—greater than any time since 1934. About the best that can be said is that the rate at which losses are increasing slowed during the course of the year, and a plateau seems to be taking shape.