Lending Standards Little Changed Over Last Quarter

The Federal Reserve recently released results for the April 2015 Senior Loan Officer Survey on Bank Lending Practices. This survey addresses changes in the supply of, and demand for, bank loans to businesses and households during the past three months.

The April Senior Loan Officer survey showed that lending standards for commercial and industrial (C&I) loans were little changed over the past three months. Banks who did report easing standards on C&I loans cited more aggressive competition from other banks or nonbank lenders as their reason for doing so. The small number of banks that tightened either standards or terms on C&I loans did so due to industry specific problems or increased concerns regarding legislative changes, supervisory actions or changes in accounting standards.

With respect to commercial real estate (CRE) lending, banks reported easing standards on construction and land development loans, and some banks reported that they had eased standards on loans secured by multi-family properties. Survey respondents also reported having ease terms on some CRE loans over the past year.

On the demand side, survey respondents indicated having experienced little change in demand for C&I loans, while also reporting that demand for all three categories of CRE (construction and land development; nonfarm nonresidential properties; multi-family residential properties) loans was stronger.

The April survey also asked a special set of questions about lending to firms in the oil and natural gas drilling or extraction sector. Of the banks that made loans to such firms, more than half expected loan quality to deteriorate somewhat this year. Banks also indicated they were taking a variety of actions to mitigate loan losses including restructuring outstanding loans, reducing the size of existing credit lines, requiring additional collateral and tightening underwriting standards for new loans among others.

Asked about loans to households, banks reported having eased lending standards for several categories of residential mortgage loans over the past three months. Most banks reported no change in standards and terms on consumer loans. Demand, on the other hand, increased for residential mortgages, auto loans and credit cards.

Changes in borrowing by businesses and consumers to finance investment and consumption are an indication of confidence levels and the relative strength of the economy. Banks in general have been slowly easing lending standards for several years and demand has mostly trended upward since the end of the recession. 

Source:  http://www.federalreserve.gov/boarddocs/SnLoanSurvey/201208/default.htm