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ABA Report: Credit Market Conditions Rebound for Consumers and Businesses

WASHINGTON —

The chief economists of North America’s largest banks see improvement in business and consumer credit market conditions over the next six months, according to a new quarterly report from the American Bankers Association.

The Q1 2021 ABA Credit Conditions Outlook highlights the results of the ABA Credit Conditions Index. The report represents a suite of indices derived from the quarterly outlook for credit markets produced by ABA’s Economic Advisory Committee, which is comprised of chief economists from major banking institutions across North America. Readings above 50 indicate that, on net, the economists expect business and household credit conditions to improve, while readings below 50 indicate a deterioration.

“The ABA Credit Conditions Index provides a barometer on the direction of credit markets going forward,” said Beata Caranci, senior vice president and chief economist at TD Bank Group and the current chair of ABA’s Economic Advisory Committee. "Going forward, this quarterly analysis offers another tool to help bankers, policymakers and the public assess the outlook for consumer and business credit conditions.”

The Q1 2021 report finds that near-term expectations for credit quality and availability rebounded for both consumers and businesses after bottoming out last summer. Specifically, all three components of the new Index increased in the first quarter of 2021, though each component remains below the 50-point threshold. This suggests that, while bank economists expect credit market conditions to remain soft over the next six months, their near-term pessimism has waned since the survey was last conducted in September.

“Both lenders and borrowers fared better last year than we would have expected as a result of the severe dislocations caused by the pandemic,” said ABA Senior Economist Rob Strand. “A robust federal response has been a critical element of the recovery, and banks continue to work with consumers and businesses struggling to make ends meet.”

In the first quarter of 2021:

  • The Headline Credit Index jumped to 43.8, its second consecutive quarterly improvement after bottoming out last summer. While the current reading represents the strongest credit market conditions since mid-2018, the Index remains below 50, signaling that bank economists expect some continued weakness in credit market conditions over the next six months.
  • The Consumer Credit Index rose to 45.3, the highest reading since mid-2019, as expectations improved for both consumer credit quality and availability compared to last quarter. Bank economists expect consumer credit availability to increase over the next six months, while a slight majority expect consumer credit quality to deteriorate.
  • The Business Credit Index climbed to 42.2, the strongest reading in more than two years. The increase was driven by improved expectations for both business credit quality and availability, though similar to consumer credit respondents, business credit quality is expected to deteriorate over the next six months.

“Although credit quality is still expected to worsen over the first half of the year for both consumers and businesses, the overall outlook for credit markets has improved significantly since the summer and fall,” said Strand. “As widespread inoculations against the virus and new fiscal stimulus measures help heal the economy, banks will continue to work closely with policymakers, consumers and businesses to ensure that affordable credit remains available and recovery strengthens.”

The full report with detailed charts and a discussion of the broader economic context is available here.

About the Credit Conditions Index
The ABA Credit Conditions Index is a suite of proprietary diffusion indices derived by the American Bankers Association from surveys of bank chief economists from major North American banking institutions. Since 2002, ABA’s Economic Advisory Committee has forecasted credit quality and availability for both businesses and consumers, indicating whether they expect conditions to improve, hold steady, or deteriorate over the ensuing six months. Readings above (below) 50 indicate that, on net, these expert business analysts expect credit market conditions to improve (deteriorate). Survey responses are anonymous and weighted equally each quarter.

Answers to Frequently Asked Questions about the ABA Credit Conditions Index can be found in an Appendix attached to the monitor. This report and all previous reports can be found at www.aba.com.

About the ABA Economic Advisory Committee
The ABA Economic Advisory Committee is currently comprised of 15 chief economists from leading bank institutions across the nation and provides perspectives on regional and national banking and economic conditions. The committee prepares economic forecasts that are presented to the press and available for bankers and advises ABA on a range of economic and financial policy issues. The group has semiannual meetings with the Federal Reserve Governors, members of the President’s Council of Economic Advisors, and other senior economic policy officials.

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About the American Bankers Association

The American Bankers Association is the voice of the nation’s $22.5 trillion banking industry, which is composed of small, regional and large banks that together employ more than 2 million people, safeguard $18 trillion in deposits and extend nearly $11 trillion in loans.

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