Fed: C&I Loan Demand Stronger; Banks More Competitive
A quarterly survey of senior loan officers by the Federal Reserve found that in the April survey, modest net fractions of domestic banks generally reported having eased their lending standards and having experienced stronger demand over the past three months. Standards on C&I loans to large and middle-market firms, and to small firms, were about unchanged. However, moderate to large net fractions of domestic banks eased many terms on C&I loans to firms of all sizes, with most indicating that they had done so in response to more aggressive competition from other banks or nonbank lenders. Fewer than half of the banks that reported having eased standards attributed the change to an improved or less uncertain economic outlook.
Domestic banks also reported an increase in demand from firms of all sizes. For the second straight survey, reports from domestic banks of stronger demand for C&I loans outnumbered reports of weaker demand. Domestic banks also reported that the number of inquiries from potential business borrowers regarding new or increased credit lines increased, on net. Banks reporting stronger demand cited shifts in borrowing from other bank and nonbank sources, as well as increases in customers’ funding needs related to inventories, investment in plant or equipment, accounts receivable, and mergers and acquisitions as important factors underlying the increase.
Domestic banks reported that their credit standards on C&I loans to both large and middle-market firms and to small firms were little changed over the first quarter of 2012. However, for the third consecutive quarter a small net fraction of U.S. branches and agencies of foreign banks reportedly tightened their standards on C&I loans.
Moderate to large net fractions of domestic banks eased many terms on C&I loans to firms of all sizes. A large net fraction of respondents indicated that they had decreased spreads on C&I loan rates over the cost of funds to both large and middle market firms and to small firms. A sizeable net fraction of banks also indicated a reduction in their use of interest rate floors and reduced costs of credit lines.
On residential real estate, banks reported they were less likely than in 2006, to varying degrees, to originate mortgages to any borrowers apart from those with the strongest credit profiles. A moderate net fraction of banks reported anticipating increasing their exposure to RRE assets over the next year. However, several large banks indicated that they anticipated reducing their exposures somewhat or substantially, and banks of all sizes cited a variety of factors that were limiting their current ability to originate or purchase RRE loans.
The April 2012 Senior Loan Officer Opinion Survey on Bank Lending Practices addressed changes in the supply of, and demand for, bank loans to businesses and households over the past three months. This summary is based on responses from 58 domestic banks and 23 U.S. branches and agencies of foreign banks.