Fewer big companies plan to increase bank borrowings in the second half than had planned to do so in the first, a Goldman Sachs & Co. survey indicates.
The decline, suggested by a survey of chief financial officers, could reduce loan growth.
Goldman now expects commercial lending in the second half to rise from 7% to 8% above the year-earlier level, after "unsustainable" rise of 15% in recent months.
The projected growth slide was portrayed as a "negative message" for bank stocks.
"The downward inflection in business loan growth could soften the cyclical case for banks in the second half," a report describing the survey explained.
Goldman has conducted the twice-yearly survey since 1976. This year, questionnaires were sent in April and May to 600 chief financial officers at selected companies on Fortune magazine's list of the 1,000 biggest industrial and 350 biggest service companies.
The responses are used to compile a net percentage figure. Respondents who expect to reduce borrowings are subtracted from those who expect to increase them; the result is divided by the number who actually borrow from banks.
According to the Goldman report, the net percentage dipped to 10% in the second half, from 16% in the first.
The result is certainly better for banks than it has been in other surveys. In 1993 and the first half of 1994, for example, the net percentage figures were negative, since more chief financial officers planned to reduce borrowings than increase them.
And a bright spot was found in projected growth in capital spending. The average will rise to 5.2%, from 3.9% in the first half, the survey suggests. Such a rise would indicate pressure eventual pressure to borrow more.
Only once, in the second half of 1989, has the survey found stronger growth projected for capital spending. The rise foreseen then was 5.6%.
Also, the report noted that the ratio of debt to pretax income among manufacturing companies has been in steep decline for five years. "Debt aversion will eventually run its course," causing companies to rack up more debt, it said.
Another bright spot was demand for commercial loans at middle-market companies, which seems to be rising faster than at big ones, the report said.
Also, half of respondents' compensation to banks - a record share - went for cash management, trust, risk management, and other ancillary services.
Additionally, the immediate revenue impact from slower commercial-loan growth will be mitigated by consumer lending, still showing double-digit increases, Goldman noted. This, in turn, should let the banking industry keep posting double-digit increases in bottom-line earnings per share.
Nonetheless, the survey raises a warning flag, Goldman noted.
It found spreads on loans declining, from an average of 80 basis points over the London interbank offered rate in October to 66 in April.
Moreover, average cash flow among the respondents is expected to rise by a record 11% in the second half. Higher cash flow is the single biggest contributor to declining loan demand, the report said.
Furthermore, 31% of the respondents said they don't even borrow from banks, up from 25% six months before.
