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While credit conditions are still expected to weaken compared to their strong position in the last few years, bank economists have come to view the situation with more optimism in the first quarter of the year due to prospects of better economic growth.

The American Bankers Association’s headline Credit Condition Index (CCI) jumped to 19.2 from the 4.5 recorded in the fourth quarter last year. The first quarter CCI was the highest level in six quarters, the trade group said in its announcement.

CCI readings of 50 and above indicate bank economists under the ABA’s Economic Advisory Committee expect business and household credit conditions to improve, while below 50 means they expect credit deterioration. The committee includes chief economists from North America’s largest banks.

With the headline index still scoring below 50, bank economists view that lenders are still likely to continue to exercise caution when extending credit to both businesses and consumers over the coming two quarters.

Despite this, the ABA said the economists’ optimism came from positive forecasts for job growth, inflation to linger above the Federal Reserve’s 2 percent target, interest rates expected to trend lower in the latter part of the year, and the near-term positive outlook from U.S. consumers.

While credit quality and availability, especially for consumer lending, remain as areas of concern, economists see a slow economic growth in 2024 and banks are expected to continue to exercise caution in lending, but to a lesser degree as recession concerns fade away.

“ABA’s latest Credit Conditions Index indicates that the economy is on solid footing, and banks intend to continue prudently extending credit to both consumers and businesses,” ABA Chief Economist Sayee Srinivasan said in a statement. “The prospect of lower interest rates later this year should boost confidence and credit demand to sustain business growth. However, banks will remain vigilant should signs of unexpected weakness develop.”

The Consumer Credit Index improved to 11.5 from 1.8 last quarter. Only one ABA Economic Advisory Committee member expects consumer credit availability to improve in the next six months, and no members expect consumer credit quality to improve. Consumer credit conditions will still weaken in the next two quarters, with concerns more placed on credit quality rather than credit availability

The Business Credit Index, on the other hand, accelerated to 26.9 from 7.1 the previous quarter as nearly half of the committee’s members expect credit availability to improve for businesses, despite credit quality still expected to deteriorate in the next six months.