Underwriting standards were eased for most loan types during the period “generally corresponding” with the fourth quarter of last year, the Fed said in results of a December survey of bank senior loan officers, with loan demand up in most categories except residential real estate (RRE) loans.
In the Fed’s latest Senior Loan Officer Opinion Survey on Bank Lending Practices, banks reported having eased standards and terms on commercial and industrial (C&I) loans to firms of all sizes, the Fed said, and a moderate net share of banks reported having eased lending standards for approving C&I loans to large and middle-market firms. A moderate net share of small banks also reported having eased standards for loans to small firms, while those of large banks remained basically unchanged on net, it said.
The Fed said a significant net share of banks reported stronger demand for C&I loans from large and middle-market firms and a modest net share of banks reported stronger demand from small firms. Respondents overall reported eased standards and greater demand for commercial real estate (CRE) lending.
Despite having eased standards for most RRE loan types and home equity lines of credit (HELOCs), survey respondents generally reported weaker demand for RRE loans over the fourth quarter, while demand for HELOCs remained basically unchanged “on net.”
Standards generally eased for credit card, auto, and other consumer loans. Demand was up for credit card loans, weaker for auto loans, and basically unchanged for other consumer loan types.
The Fed noted that on balance, banks reported expecting lending standards to ease further and loan demand to strengthen, but they reported mixed expectations about loan quality.
Loan quality, as measured by delinquencies and charge-offs, is expected to rise for business loans in portfolio over 2022, but banks noted expectations of a deterioration in the quality of household loans, the report notes.
The Fed said that “significant net shares of banks expected a deterioration in the quality of credit card loans to prime and nonprime borrowers and of auto loans to nonprime borrowers; moderate net shares of banks expected the quality of auto loans to prime borrowers to worsen; and a modest net share of banks expected the quality of nonconforming jumbo mortgages to deteriorate.”