Senior loan officers report some tighter credit standards, weakened borrowing

Demand for loans to businesses weakened in the fourth quarter of 2018, as banks tightened standards for commercial real estate loans and left unchanged terms and standards on commercial and industrial (C&I) loans, a report of views from among senior loan officers stated Monday.

In its quarterly Senior Loan Officer Opinion Survey on Bank Lending Practices for January 2019, the Federal Reserve said that “moderate net fractions” of banks reported tightening their standards for loans secured by multifamily residential properties and loans for construction and land development purposes. A modest net share of banks, the Fed said, reported tightening standards for loans secured by nonfarm nonresidential properties.

Meanwhile, a significant net fraction of banks reported weaker demand for construction and land development loans, and a modest net share reported weaker demand for multifamily loans. Demand for loans secured by nonfarm nonresidential properties was basically unchanged on net.

Regarding C&I loans, the Fed said a modest net share of domestic banks reported that demand from large and middle-market firms weakened, while a moderate net share of banks reported weakened demand from small firms. Meanwhile, a moderate net share of foreign banks reported weaker demand for C&I loans over the fourth quarter, the Fed said. “A majority of the banks that reported weaker demand indicated that decreases in customers’ needs to finance mergers and acquisitions as well as investment in plants and equipment contributed to weaker demand, as did a shift in customers’ borrowing toward other bank or nonbank sources,” the Fed said.

As for loans to households, the Fed report said that – in most categories of consumer and residential real estate – standards remained “basically unchanged” on balance. The one exception: loans via credit cards, which exhibited tightening standards over the fourth quarter, the Fed said.

Demand was weaker for household loans of all categories in the fourth quarter, the Fed said.

The January survey also queried the loan officers about their expectations of lending in the over the coming year – and found them pessimistic.

According to the Fed, the lending officers reported they expected their banks to tighten standards for all categories of business loans as well as credit card loans and jumbo mortgages.

“Demand for most loan types is expected to weaken, on net, with the one exception being credit card loans, for which demand is expected to remain unchanged,” the Fed said in a release. “Meanwhile, banks anticipate that loan performance will deteriorate for all surveyed categories.”

The Fed’s quarterly survey of lending officers covers up to 80 large domestic banks and 24 U.S. branches and agencies of foreign banks. The the survey is generally conducted quarterly, the Fed said, so that results are available for the January/February, April/May, August, and October/November meetings of the Fed’s rate-setting Federal Open Market Committee (FOMC).

Senior Loan Officer Opinion Survey on Bank Lending Practices