Bank loan officers report tightened commercial real estate loan standards; some note risk mitigation for certain foreign exposures

Standards for loans to households largely unchanged, except for tightening on credit cards

Banks tightened standards across all three major commercial real estate (CRE) loans categories – construction and development loans, nonfarm residential loans, and multifamily loans – over the past three months as demand in all three categories reportedly weakened, according to results of the Federal Reserve’s latest senior loan officer survey on bank lending practices.

The April 2019 Senior Loan Officer Opinion Survey on Bank Lending Practices addressed changes in the standards and terms on, and demand for, bank loans to businesses and households over the past three months, which generally corresponds to the first quarter of 2019. In all, the Fed received responses from 73 domestic banks and 21 U.S. branches and agencies of foreign banks, the agency said.

The survey also addressed commercial and industrial (C&I) loans and loans to households.

In addition to the above-noted responses on CRE lending, the survey also generated the following:

  • Regarding loans to businesses, respondents to the April survey indicated that, on balance, they left their standards basically unchanged and eased some of the terms on C&I loans to large and middle-market firms, while standards and most terms remained basically unchanged for such loans to small firms. Meanwhile, banks reported weaker demand for C&I loans from firms of both size categories.
  • Banks responded to a set of special questions investigating C&I lending to firms that are exposed to developments in Asia or Europe. The Fed said a moderate net fraction of banks reported that they expect the quality of loans to exposed firms to deteriorate with respect to current levels over the remainder of 2019. Those taking steps to mitigate risk of loan losses from these exposures reported tightening of lending policies on new credit to exposed firms as the most frequently used action over the past year.
  • Regarding CRE loans, banks also responded to a set of special questions about changes in lending policies and loan demand over the past year. Respondents reportedly eased important lending terms, including maximum loan size, maximum loan maturity, and the spread of loan rates over their cost of funds, across all three major CRE loan categories. Most of the banks that gave reasons for easing CRE credit policies cited more aggressive competition from other banks or nonbank lenders.
  • For loans to households, a moderate net fraction of banks reported that standards on credit card loans tightened, on net, while their lending standards on auto loans and on most categories of residential real estate (RRE) loans remained basically unchanged. Banks reported weaker demand for almost all categories of RRE loans and for credit card loans, while demand for auto loans was basically unchanged.

The April 2019 Senior Loan Officer Opinion Survey on Bank Lending Practices