Phoenix Management Lending Survey Reveals Increased Optimism Despite Instability

Phoenix Management released its Q3/23 Lending Climate in America survey, which asked lenders how they have changed their approach to pursuing new business. With the various changing environments (geopolitical, interest rate, etc.), 50% of lenders said that they have been less aggressive in chasing new opportunities, while the other 50% are evenly split between maintaining standards when pursuing new business opportunities and becoming more aggressive in approaching new business.

When asked which loan class their respective institution was most concerned about from a risk-performance respective, 63% of lenders are most concerned about commercial and industrial loans, while the other 37% were most concerned about commercial real estate loans. All the surveyed lenders agree that commercial-based loans are more concerning than residential and consumer loans.

Additionally, Phoenix’s “Lending Climate in America” survey asked lenders to identify when they believe interest rates will begin to decline. Of the lenders surveyed, seventy-five percent of lenders believe interest rates will begin to decrease in 2024, but that is split between the first half and the second half of the year. The other 25% of lenders believe the decrease will begin in 2025 or beyond.

Lender optimism in the U.S. economy declined slightly in the near term from 1.78 in Q1/23 to 1.75 in Q3/23. 50% of lenders believe the economy will perform at a “C” level during the next six months while 38% believe the economy will perform at a “D” level. More telling, lender expectations for the U.S. economy’s performance in the longer term increased dramatically from 1.78 to 2.50. Of the lenders surveyed, 50% believe the U.S. economy will perform at a “B” level during the next twelve months.

“Lenders appear to be more optimistic about the longer-term economic trends in the U.S. economy” Michael Jacoby, senior managing director of Phoenix Management, a part of J.S. Held, said.  “This is the first time in two-plus years that longer term expectations have increased well beyond short term expectations.  Lenders foresee interest rate declines beginning in 2024 and report a continued relaxation in loan structures.  Despite these positive signs, constrained liquidity in the capital markets was the number one factor selected by our survey respondents as potentially impacting the economy and none of our respondents reported that their customers expect strong or very strong growth in the next six to 12 months.  It is unclear the extent to which this increase in optimism is anything more than wishful thinking, as many of the other metrics tracked by our survey suggest a continuation of difficult times ahead for borrowers.”