Boston, MA -- (SBWIRE) -- 06/29/2012 -- The US commercial banking sector continues to heal slowly, alongside an economic recovery that is weak by historical standards. Total client loans have finally returned to their 2008 peak, and continue to grow at a modest, steady pace, with a 2.4% increase in 2011. We anticipate 5.5% lending growth in 2012, with upside risks. Client deposits continue to surge, having risen by a cumulative 17% since the end of 2008, and 6.9% in 2011 alone. We are pencilling in 6.0% deposit growth in 2012, in line with a general shift toward a conservative funding mix for many commercial banks. The loan-deposit ratio has fallen from 133% in 2007 to around 110%, and we expect it to remain around this level for the coming years. There are several reasons why we believe the US banking sector has turned the corner, though there are a few major risks that threaten to derail the recovery. Positive News For Banks ???? Lending growth is picking up. The trough in credit growth came in Q110 at -4.5% y-o-y, and two years later, from corporate to household lending, banks are stepping up once again. Nonrevolving consumer credit growth reached a six-year high in December 2011, at 5.5% y-o-y, while revolving credit growth finally turned positive for the first time since Q109 (albeit at a still-weak 0.1% y-o-y). The willingness to borrow appears to be increasing, albeit at a very modest pace, as employment prospects and economic growth improve alongside low interest rates. Business lending, too, is picking up the pace. The weak spot remains real estate lending, which we do not expect to improve substantially for several quarters. ???? Loan standards continue to ease. According to the Federal Reserve's quarterly survey, senior loan officers at commercial banks continue to loosen lending restrictions, both for business and consumer loans. The accompanying chart shows the net percentage of respondents tightening loan standards, and while the proportion reporting tightened business loans ticked up in the most recent survey in January 2012 (mainly as a result of eurozone fears, we believe, meaning this should be temporary), conditions remain fairly loose. ???? Non-performing loan ratios are declining. As the accompanying chart shows, based on Federal Reserve data, NPLs peaked in Q309 but are slowly coming down. Loan loss reserves, too, are shrinking, suggesting cautious optimism among banks. ???? Banks are looking increasingly to profit-making opportunities, rather than merely ensuring their survival. Following years of balance sheet consolidation and fear over the condition of the economy, US commercial banks are poised to become increasingly aggressive. Earnings result conference calls for several major US banks included indications that corporate managers are looking for ways to increase margins and top line. Return-on-assets ratios are slowly climbing.
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