Indeed, for each of the past several quarters the volume of problem assets at commercial banks has declined, and the size and the number of bank failures in recent years have been exceptionally small. Although the demand for business loans has remained weak, the banking industry has continued to benefit from strong demand for household credit, not least for residential mortgage products.
The outlook for asset quality is also favorable. As economic activity continues to grow and businesses become more confident about their customers’ demands, business loan demand should increase, and pressures on banking margins should begin to ease.