Lending standards tighten, even though demand weakens; banks expect snug criteria to continue

Tighter lending standards, and weaker demand, were reported during the fourth quarter for commercial and industrial (C&I) loans to businesses, while lending standards for households during the same period were tighter or remained the same with weaker demand, a survey released Monday by the Federal Reserve asserted.

And banks expect those tighter standards to continue, according to the survey results.

In its January 2023 Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS), the Fed also said that, banks reported tighter standards and weaker demand for all commercial real estate (CRE) loan categories in the last quarter of 2022.

The survey covers up to 80 large U.S. banks and 24 branches and agencies of foreign banks. The Fed generally conducts the survey quarterly, it said.

For the C&I loans, the agency noted that the results reflected those made to large, middle-market, and small firms over the fourth quarter

The survey also found that banks had tightened standards, among weakened demand, for home equity lines of credit (HELOCs). Meanwhile, the report stated, standards tightened and demand weakened, on balance, for credit card, auto, and other consumer loans.

Tightening credit is expected to continue in at least the near future, according to a series of special questions included on the survey. “Banks, on balance, reported expecting lending standards to tighten, demand to weaken, and loan quality to deteriorate across all loan types,” the report stated.

Senior Loan Officer Opinion Survey on Bank Lending Practices