Banks continued easing lending standards for Commercial & Industrial loans in the past three months, according to the most recent quarterly Senior Loan Officer Opinion Survey on Bank Lending Practices released by the Federal Reserve Board.
The survey stated that for roughly 30% of domestic commercial banks lowered spreads of loan rates above their cost of funds for large and middle-market, and small firms. Banks cited more aggressive competition from other banks and non-bank lenders as the most important reason for the easing of standards. Survey participants also noted the economic improvement and increased risk tolerance as the other motivating factors.
On the commercial real estate lending front, the survey said that 9% of domestic banks reported eased lending standards in the past three months. This is slightly less versus April's net fraction. The net percentage of domestic banks reporting a rise in demand for CRE loans grew to 25% from 20% in the previous survey.
In terms of C&I loan demand, the survey said that more than one-third of domestic banks, on net, noted demand for C&I loans made to large and middle-market borrowers has increased since the April survey. Furthermore, the survey noted that 45% of domestic respondents reported rising inquiries from potential borrowers over this same period. This increased demand was due to rising financing needs for accounts receivable and inventories as well as investment in plant and equipment, said loan officers.
The survey also stated that in household lending, the net proportion of domestic banks that have indicated a higher interest in making consumer installment loans dropped to 9% compared to 17% in April. Simultaneously, demand for consumer loans was weaker at12% on net versus 22% of institutions in the April survey. In regards to ARM lending, over one-half of banks said that hybrid ARMs made up at least 75% of all ARMs originated in the past three months. Another 17% reported that hybrids accounted for between 30% and 75% of all originations in this period.