These are the personal views of Thomas Lam, group chief economist at OSK Group/DMG & Partners:
The improvement in bank lending is crucial in fostering a healthy and sustainable economic recovery. A simple correlation between the growth in real GDP and real bank lending is close to 70%, with GDP typically leading the latter by a couple of quarters.
The sluggish bottoming out in real bank-lending growth following the business cycle trough in the second quarter of 2009 seems comparable to the 1990-91 episode; however, the extent of the recent contraction mirrors the 1973-75 period.
The dynamics of bank lending are extremely complicated, especially following a negative financial-led adjustment. Loose monetary policy per se does not necessarily promote bank lending. Capital availability and the regulatory environment could actually play a bigger role in influencing lending.
Both supply and demand conditions affect the extent of bank lending. A healthy recovery in lending requires an increase in the willingness of banks to extend credit combined with strong demand for loans.