Total bank lending in Singapore fell 0.2% to $275.4 billion in October from $275.9 billion in September, central bank data showed today. Housing loans to consumers rose 2.4% to $89.1 billion in October from $87.1 billion in September and $85.1 billion in August.
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Tim Duy – Director of Undergraduate Studies of the Department of Economics at the University of Oregon and the Director of the Oregon Economic Forum – noticed an amazing sentence in the minutes of the most recent meeting of the Fed Open Market Committe…
The Wall Street Journal reports:Executives at the New York company plan to narrow the focus of Citigroup’s U.S. branch network to six major metropolitan areas, according to people familiar with the situation. Citigroup also will limit its overall consu…
I have repeatedly said that the banks won’t significantly increase their lending to individuals and small businesses until the economy stabilizes, no matter how much money the government gives them.I have repeatedly said that the whole concept of a “jo…
Economist James Galbraith told McClatchy:The strategy that was stated at the beginning of the year — which is that you would sustain the banking system in order that it would resume lending — hasn’t worked, and it isn’t going to work.”Galbraith is …
Nine-year lending low forces businesses to cut investment The Bank of England’s (BoE) quarterly review of lending trends found that many firms still experiencing the effects of the credit crunch, with business lending suffering its biggest drop in nine years. Thinking Money highlights that net lending to private non-financial corporations also fell by 5.4 billion [...]
Astonishingly rapid lending growth appears to have rescued the Chinese economy but at what cost?
China’s economy has experienced a dramatic recovery over the past six months. It now looks highly likely that GDP growth will meet the government’s 8% target for 2009—a target which seemed overly optimistic just a few months ago. Although private demand has held up better than expected, the rapid pick-up in the economy has only been possible owing to a massive increase in state-mandated bank lending. However, the huge increase in bank lending has also sparked concerns over the emergence of asset-price bubbles, and over the risk of a sharp rise in non-performing loans (NPLs) that could lead to a banking crisis.
That China’s economy has recovered much sooner and more strongly than expected is not in doubt. Although real GDP growth only slowed to 6.8% year on year in the final quarter of 2008, it is estimated that on a quarter-on-quarter seasonally-adjusted annualised basis, growth slumped to around 2%—well below the 13% growth rate achieved in 2007. Moreover, the 7.9% year-on-year growth rate achieved in the second quarter of 2009 understates the true pace of the recovery in growth, which reached an estimated 17% on a quarter-on-quarter annualised basis. …
The EU and international lending institutions have agreed a deal with Ukraine to help it provide stable supplies of Russian gas to Europe. Loans worth USD 1.7bn were agreed in return for reforms to Ukraine’s gas sector, the European Commission said.
The Wall Street Journal writes today: Lending continues to slow as bankers and borrowers refrain from taking risks, in a bearish sign for the economy. The total amount of loans held by 15 large U.S. banks shrank by 2.8% in the second quarter, and more…
Chancellor says small and medium-sized businesses are still paying too much for bank loans that remain in short supply
British bank chiefs will come under renewed pressure today to make more credit available to small and medium-sized businesses in a crunch meeting with the chancellor, Alistair Darling.
Some of the country’s most powerful banking executives are said to be squaring up for a new battle after yesterday rejecting Darling’s complaint that struggling businesses were still paying too much for bank loans that remain in short supply.
Stung by the chancellor’s renewed criticism ahead of today’s meetings with the Treasury, the British Bankers’ Association took to the airwaves yesterday to insist it is doing its best in hard times for recession-hit customers.
Lending to small businesses rose by £391m in June as almost 50,000 new small business relationships were established with banks, the industry group said. Deposits from small businesses also grew by £577m, perhaps reflecting “improved business confidence”, the BBA said.
But John McFall, the chairman of the Treasury select committee, today warned that MPs would expect banks to make their lending agreements more transparent.
He told BBC Radio 4′s Today programme: “There is a tension between what the banks are doing and what the governor of the Bank of England wants to do. The banks want to sustain the level of profitability, so build up the capital.
“There is the government’s and the governor’s fear that the recovery will be jeopardised by an inadequate provision of credit and increased cost of borrowing, and the anecdotal evidence that’s been coming to the select committee for the past number of months has been … that it’s small and medium sized businesses that are losing out.
“The Bank of England report that came out last week said quite clearly that there is less credit available for businesses and it’s more expensive. In May, lending was negative – it went down 5.4%. These are the facts. The banks and the government need to get round the table today to ensure that we have this increased lending.”
McFall said he wanted to see a plan put in place to ensure “that lending agreements are transparent, so we can see it in black and white”.
Angela Knight of the British Banking Association told the programme: “Overall lending to British businesses has continued to increase. Equally, it is a very difficult market out there, the recession is a big one and some sectors are hit more than others.”
But she added: “Demand [for credit] has dropped off and we need to address this as well.”
With the economy’s second quarter growth figures worse than predicted – a 0.8% contraction in the three months up to June – Darling had used the platform provided by BBC1′s The Andrew Marr Show yesterday to protest that “what companies are being charged does seem to have gone up relative to what banks are actually having to pay because of the fact we’ve got very low interest rates”, which are currently 0.5%. “They’ve got to live up to their promises,” he emphasised.
Public hostility towards the banks has focused on the return of high-flying bonuses in the investment banking sector, despite the multi-billion pound rescues by the taxpayer which – Darling and David Cameron both admitted yesterday – will mean cuts in public spending.
In Belfast, a Northern Ireland MP said he would name and shame some of the province’s banks over their failure to help out small businesses. Alasdair McDonnell, the SDLP’s deputy leader and the MP for South Belfast, is to hand over a dossier on the local banks to the prime minister later this week. He complained that their failure had “pushed a number of viable local businesses over the edge – with many more on the precipice. Banks could – and should – be providing a better service to the public.”
The chancellor receives similar complaints whenever he meets small business leaders. He acknowledged on TV that he is also asking the banks to rebuild their balance sheets to make them stronger than before the financial crisis.
But he added: “People have got to understand in the banks: we did not stabilise the banking system, rescue some banks, out of some sort of charitable act or because we felt sorry for them. Far from it. We did it because if you don’t have a banking system that provides credit for businesses, then you will make recovery and prosperity after that much, much more difficult.”
Opposition politicians complained that ministers had dithered on banking reform. Vincent Cable, the Liberal Democrats’ Treasury spokesman, said: “It is amazing that the chancellor has only just woken up to the fact that this is a problem.” Mark Hoban, a shadow Treasury minister, said: “We have been warning about the lending crisis, including in government-owned banks, for months.”
Treasury could underwrite ‘risky’ home loans
Proposed scheme pushed by US insurer Genworth
First time home buyers could be thrown a lifeline under plans being considered by the Treasury to underwrite ‘risky’ mortgages, allowing people with only small deposits to buy homes.
Since the credit crunch took hold, banks have demanded far tougher criteria for lending, asking buyers to provide between 25% and 30% of the price of a home as a deposit.
There were 30,000 loans to first time buyers in the first three months of 2009 against an average of more than 100,000 a quarter in the previous decade.
But the government is now studying a scheme used in Canada in the hope of encouraging banks and building societies to step up their lending. The Canadian programme requires all mortgages secured with a deposit of 20% or less to be insured by the government or private insurers, giving the banks more confidence to lend. The Treasury has taken soundings from specialist insurance companies such as Genworth Financial, which suggest that the Canadian housing market has withstood the pressures of the global financial crisis better than most.
If the Treasury copied the scheme it might have to act as the insurer in the first instance before stepping back to underwrite insurance from private sector companies – opening the government to considerable criticism as it would put further taxpayer money at risk at a time when public finances are already stretched.
The amount of money flowing in the financial system still remains a concern for the government despite attempts to encourage lending through bank bailouts. Chancellor Alistair Darling is tomorrow scheduled to call in the major lenders to urge them to step up their lending to homeowners and small businesses to help stimulate the economy which has now contracted for five quarters in a row.
The possibility of the insurance scheme is outlined in the white paper on banking reform published this month and the Treasury promises an up-date in the autumn’s prebudget report. “Some countries have adopted alternative models for mortgage insurance such as Canada where mortgage insurance is compulsory for all mortgages above a lower limit and below a maximum proportion of a home’s value,” the paper said.
“Some UK stakeholders have proposed that the government considers the benefits of international models like Canada. The government is interested in the lessons that may be learnt from the experiences of other countries and will update at the pre-budget report,” the paper said.
The Treasury has made no decision on whether it would work here. The paper explains why it is being considered. “It is sometimes argued that this model helps provide borrowers with continued access to mortgage finance by encouraging risk sharing between insurers and lenders, and helping ensure that lenders do not take excessive risks when the economy is growing and do not withdraw from higher LTV lending during periods of economic disruption,” the paper said. But Treasury officials are also mindful of the pitfalls of the scheme which can push up the price of loans to first time buyers and others with small deposits. It might also be accused of trying to promote risky lending again or breath life into mortgage indemnity guarantees which lenders have charged customers for high loan to value loans but were largely scrapped in the mid 1990s.
The idea is being pushed by specialist insurers who might sell the necessary insurance to the banks. Genworth Financial, a US-based company, is among those to have submitted proposals. It is suggesting that the state would act as direct guarantor initially and that private sector players would step in to allow the government to “reduce its role from being a direct insurer to a guarantor of the private mortgage insurance providers”. “We urge the government to consider developing a partnership with mortgage insurance providers in order to prudently and efficiently provide a lasting and sustainable solution to prudently and efficiently provide a lasting and sustainable solution for the wholesale mortgage market,” Genworth said.
Chancellor says he is ‘extremely concerned’ about cost of borrowing remaining high while interest rates are low
Alistair Darling today called on banks to improve lending to businesses, saying he was “extremely concerned” about the cost of borrowing.
Bank bosses are to be summoned to explain why they are charging more for credit when interest rates are at historically low levels. The chancellor suggested they had failed to keep promises to improve lending facilities in return for taxpayer support.
He said banks had not been rescued as “some sort of charitable act … We did it because if you don’t have a banking system that creates credit for businesses then you will make recovery and prosperity after that much more difficult.”
Speaking on BBC1′s Andrew Marr Show, Darling acknowledged that banks needed to rebuild their balance sheets in the aftermath of the financial crisis. But he said: “At the same time, because of the particular circumstances we are in now, because of the fact we’ve got this recession, we also need them to lend money and that’s why we recapitalised them to do that.
“That means they’ve got to live up to the promises they’ve made. That’s why we will be going through with each individual bank asking them why is it, at a time when the cost of borrowing is coming down, it would appear that the cost to small business appears to have gone up? We’re playing our part; the banks have got to understand that the public will not understand it if they do not play their part to the full.”
Angela Knight, chief executive of the British Bankers’ Association, said banks were improving lending. “As far as the major banks are concerned they are lending, and increasing their lending,” she told BBC Radio 4′s The World This Weekend.
On interest rates, she said the base rate did not represent the real cost of money. “People say, ‘look, base rate is down to 0.5%, so why do you charge what you do for lending?’ The answer to that is that you can’t get the money at that rate. Base rate is not the money which a bank pays.”
Knight said the wholesale price of money was about twice that of the Bank of England rate. “But also, what there isn’t is capacity in the wholesale market because it’s credit crunch worldwide, so in fact the cost to the banks has gone up.”
Vince Cable, the Liberal Democrats’ spokesman on Treasury affairs, said: “It is amazing that the chancellor of the exchequer has only just woken up to the fact that this is a problem. We have been warning about the lending crisis, including in government-owned banks, for months.
“The problem isn’t just about the cost of borrowing, but the difficulties which many companies who are solvent, with a good credit history, have in obtaining bank credit without unreasonable demands for personal security and charges. It’s time the government stopped being a passive investor in the nationalised and semi-nationalised banks and ensured that they maintain lending to good British companies for the wider interest of the national economy.”
The credit markets are improving and the banks can sell the guaranteed portion of their SBA loans at premiums closer to what they got before the financial meltdown.
Many of the banks that got federal aid to support increased lending have instead used some of the money to make investments, repay debts or buy other banks, according to a new report from the special inspector general overseeing the government…
Unemployment is rising. Foreclosures are surging. Lending is still constrained. So why exactly is the Obama administration waiting to act?
More on Housing Crisis
