Standards, terms tightened on loans in first quarter especially in latter half with impact of COVID-19

Tightened standards and terms on a wide variety of loans were imposed by banks in the first quarter of 2020, with much of that action taken during the latter part of the quarter as financial institutions responded to the coronavirus crisis, a report from lenders indicated Monday.

In the Federal Reserve’s April 2020 Senior Loan Officer Opinion Survey on Bank Lending Practices, the agency said that senior bank lending officers reported that standards and terms were tightened on commercial and industrial (C&I) loans to firms of all sizes (“significantly,” according to the report); all three major commercial real estate (CRE) loan categories – construction and land development loans, nonfarm nonresidential loans, and multifamily loans; and all three consumer loan categories – credit card loans, auto loans, and other consumer loans.

However, the Fed said, “moderate fractions of banks” tightened lending standards on most categories of residential real estate loans. “Banks reported stronger demand for all categories of closed-end mortgage loans and weaker demand for all categories of consumer loans,” the Fed report stated.

The Fed’s survey includes senior lending officers of 80 large domestic banks and 24 U.S. branches and agencies of foreign banks, the Fed said. The agency generally conducts the survey quarterly, timing it so that results are available for the Fed’s Federal Open Market Committee (FOMC) meetings. The April/May meeting was held last week.

In addition, the Fed reported that (based on two sets of special questions) C&I loan demand was about even over the last six months and CRE loan standards had been tightening over the past year.

“Banks reported that C&I loan demand from borrowers from most industries changed little over the past six months, and most banks that reported stronger demand cited an increase in customers’ precautionary demand for cash and liquidity and a decrease in customers’ internally generated funds as reasons for stronger demand,” the Fed reported.

Regarding CRE lending policies, the Fed said, banks reported having tightened loan-to-value ratios, debt service coverage, and the spreads of loan rates over their costs of funds across all three major CRE loan categories over the past year.

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

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