Senior bank loan officers indicated they eased standards on commercial and industrial (C&I) loans, most categories of residential real estate loans, and three consumer loan categories during the first quarter of this year, the Federal Reserve said in a survey report released Monday, though policies generally remained tighter than pre-pandemic levels.
The report from the Federal Reserve states that banks “on balance” eased their standards on C&I loans to firms of all sizes over the first quarter. They reported weaker demand, on net, for C&I loans to large and middle-market firms – those with annual sales of $50 million or more – and said demand for C&I loans from small firms (sales under $50 million) remained basically unchanged.
Standards on commercial real estate (CRE) loans secured by nonfarm nonresidential properties remained basically unchanged, the Fed said, while banks tightened standards on construction and land development loans and eased standards on multifamily loans.
The Fed said that banks reported stronger demand for construction and land development and multifamily loans and reported weaker demand for nonfarm nonresidential loans.
As for loans to households, the Fed reported that banks eased standards across most categories of residential real estate (RRE) loans, on net, and reported stronger demand for most types of RRE loans over the first quarter. Banks also eased standards on credit card loans, auto loans, and other consumer loans. The Fed said demand for credit card and other consumer loans remained basically unchanged, and demand for auto loans moderately strengthened.
The survey report is based on responses from 75 domestic banks and 21 U.S. branches and agencies of foreign banks.
This survey included questions on banks’ lending policies compared with pre-pandemic levels (since the end of 2019), by borrower risk rating. Results included:
- Banks reported tighter C&I and consumer lending policies, on net, for most categories of borrowers compared with pre-pandemic levels. Large banks reported having tightened policies on C&I loans to most categories of firms, except on loans to large investment-grade firms, for which they reported having eased standards and most terms on net.
- Large banks – those with total domestic assets of $50 billion or more as of Dec. 31, 2020 – reported having narrowed the spread of loan rates for large C&I borrowers since the end of 2019.
- Small banks reported tighter standards on loans to all categories of C&I borrowers, the Fed reported, and especially on loans to small and below-investment-grade firms. Small banks reported having tightened most terms, especially on loans to large firms within each risk category and especially for riskier firms within each firm size. However, small banks reported having narrowed the spread of loan rates for all categories of C&I borrowers since the end of 2019.
- Foreign banks reported having tightened standards and about half of the surveyed terms on C&I loans to below-investment-grade firms; and having left standards and most terms basically unchanged on loans to investment-grade firms.
- For consumer loans, banks generally reported tighter standards for credit card and auto loans compared with pre-pandemic levels. Within each loan category, banks reported having tightened standards especially for nonprime (near-prime and subprime) borrowers. Furthermore, banks reported having tightened most credit card terms across the credit score distribution and most auto loan terms for nonprime borrowers. Responses vary across bank sizes. Large banks tightened standards on both loan categories across the credit score distribution, while small banks tightened standards only on loans to nonprime borrowers.
- For both credit card and auto loans, the net share of banks reporting tighter standards for riskier borrowers was notably greater among large banks than among small banks. Among lending terms, large banks lowered credit card limits and widened spreads of auto loan rates across the credit score distribution, while small banks increased credit card limits and narrowed the spread of auto loan rates for most risk categories.