Banks see somewhat deteriorating loan performance in 2020, survey shows

Senior bank loan officers said they expect banks to tighten standards for most categories of business loans, credit card loans, and auto loans over the coming year, but they expect standards will be unchanged for closed-end mortgage loans, according to a survey report released Monday by the Federal Reserve.

The loan officers also said they expect loan performance generally to deteriorate “somewhat” over 2020, the survey showed, except in the area of closed-end mortgage loans. Credit card and auto loans to nonprime borrowers stand out as the loan categories for which the largest net shares of banks expect a deterioration in performance, the survey report said.

The survey asked banks’ senior loan officers about changes in standards, terms, and demand for bank loans to businesses and households over about the fourth quarter of 2019. It also included responses on special questions about expectations for 2020. The Fed received responses from 74 domestic banks and 22 U.S. branches and agencies of foreign banks.

Here are the survey results regarding fourth-quarter 2019 activity, in summary:

  • Standards on commercial and industrial (C&I) loans were basically unchanged, while demand weakened from firms of all sizes.
  • Loan standards and demand were unchanged for all commercial real estate (CRE) loan categories except construction and land development loans, for which standards tightened and demand weakened over the fourth quarter of 2019.
  • Banks left their lending standards unchanged for all types of residential real estate loans over the fourth quarter, while demand strengthened for most categories of closed-end mortgage loans and weakened for home equity lines of credit (HELOCs).
  • Banks tightened their lending standards on credit card and auto loans, while demand remained unchanged for credit cards and weakened for auto loans.

The survey also included a set of “special questions” regarding banks’ expectations for lending standards, loan demand, and loan performance over 2020. In addition to tightening standards for most loans except closed-end mortgages, the survey showed that demand is expected to be unchanged for all types of loans except multifamily CRE and auto loans, for which banks expect demand to weaken; and credit cards, for which they expect demand to strengthen.

The January 2020 Senior Loan Officer Opinion Survey on Bank Lending Practices