The Federal Reserve's Senior Loan Officer Opinion Survey on Lending Practices released last week noted that lending standards have tightened further in the past three months.
"The net fractions of domestic banks reporting tighter lending standards were close to, or above, historical highs for nearly all loan categories in the survey," according to the survey. Demand was not as weak as in the last quarter.
In terms of C&I loans, the survey reported that large banks had tightened their lending standards for large and middle-market firms - 53% compared with 27% in the January survey. The terms of the loans also tightened. According to the survey, 31% of respondents reported some amount of tightening in terms of the maximum size of the credit line compared with 24% previously. In the previous report, 9% of banks had noted some easing in terms. However, this time no banks reported easing. The number of respondents that tightened in certain areas of business increased. These areas are costs of credit lines, loan spreads over COFs, premiums charged on riskier loans, loan covenants and collateralization requirements.
Respondents were asked the reasons for the tightening in credit standards and loan terms. Respondents cited the deterioration in the bank's current or expected capital position and the worsening of industry-specific problems for that change.
Meanwhile, 34% of respondents said demand from large and middle-market firms for C&I loans was moderately to substantially stronger compared with 18% last quarter. The primary reason for the increased demand was because nonbank sources had become less attractive for borrowers. The survey reported that 37% of the respondents experienced a moderate to substantial increase in the number of inquiries from potential borrowers regarding new or increased credit lines. This compares with 12.5% in the January survey.
In terms of CRE loans, 75% of large bank respondents said that credit standards for approving commercial real estate loans had tightened "considerably." In the previous survey, nearly 88% had tightened to some degree. Meanwhile, 19% of respondents experienced "moderate to substantially" stronger demand versus 9% in January. The survey reported that 50% experienced moderate to substantially weaker demand, which is somewhat improved from 58% in the previous survey.
Credit standards for residential mortgage loans also tightened in the past three months, particularly for prime and subprime loans compared with the previous survey. According to the survey, 73% of large bank respondents said they have tightened on their prime loans, up from 55% in the last survey. In the nontraditional residential mortgage loan category, 76% of those respondents that offered these loans tightened compared to 85% previously. In the subprime category, 83% of those that originate these loans have tightened credit standards versus 60% in January's report. Regarding demand, 37% of the respondents experienced moderate to substantially stronger demand, up from 3% previously. Those experiencing weaker demand declined to 47% from 65%. Results were similar for those originating nontraditional residential mortgage loans. For example, 20% of the large bank respondents saw stronger demand compared to 4% previously, while 44% had weaker demand versus 69% in the past report. In the subprime category, however, demand was weaker from the previous report - no doubt because very few large banks are making these types of loans.
Credit standards for revolving home equity lines of credit were tighter with 83% of large banks saying they've tightened compared to 68% previously. Demand, however, was stronger compared with the previous survey. In the consumer loan category, banks have become less willing to make installment loans. In addition, the terms for extending credit cards and consumer loans as well as credit standards have notably tightened. At the same time, more respondents saw a pick up in demand for all consumer loan types during the quarter.
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