Banks tightened credit largely across the board in 3Q ’20; demand lower for commercial loans, higher for consumer borrowings

Banks were largely tightening credit standards and terms across the board in the third quarter, a report issued Monday by the Federal Reserve indicated.

At the same time, the report suggested that demand for borrowing was mixed.

According to the Fed’s October 2020 senior loan officer opinions survey on bank lending practices (which generally covers lending activity over the previous three months, or the third quarter of 2020), standards and terms for commercial and industrial (C&I) loans, commercial real estate (CRE), and for all residential real estate (RRE) and consumer loan categories were tightened.

The loan officers reported demand for the C&I loans was weaker during the period (and from firms of all sizes), as was the demand for CRE loans in all three categories of loans: construction and land development, nonfarm nonresidential, and multifamily.

On the consumer side, the banks reported tightened standards on RRE and all three categories of consumer loans: credit cards, autos, and other consumer loans.

However, the bankers said demand for credit card loans, auto loans, and most categories of RRE loans during the third quarter was stronger.

In a set of special questions, the Fed said, the survey found that a borrower’s degree of financial hardship was most widely cited as important in determining banks’ willingness to approve forbearance requests or the terms of forbearance.

More specifically, the survey found that for all loan categories, most bankers reported that less than 5% of loans were in forbearance in the third quarter. Payment deferral was the most widely cited form of forbearance for CRE, RRE, and consumer loans, the survey results showed, while covenant relief was the most cited form of forbearance for C&I loans.

Federal Reserve Senior Loan Officer Opinion Survey on Bank Lending Practices