Respondents to the Federal Reserve’s July 2018 Senior Loan Officer Opinion Survey on Bank Lending Practices indicated officers eased their standards and terms on commercial and industrial (C&I) loans to firms of all sizes and kept commercial real estate (CRE) lending standards about unchanged on balance. Banks reported stronger demand for C&I loans by small firms and weaker demand for CRE loans.
Banks also responded to a set of special questions inquiring about the level of banks’ current lending standards relative to the midpoint of the range over which banks’ standards have varied between 2005 and the present. Banks, on balance, reported that their levels of lending standards on C&I loans are currently at the easier end of the range from 2005 to the present.
Regarding C&A loans, a moderate fraction of domestic banks reportedly eased standards on loans to large and middle-market firms, and a modest fraction reported having done so on lending to small firms. Over the second quarter of the year, banks reportedly eased most terms on C&I loans to firms of all sizes.
Significant net fractions of banks reportedly increased the maximum size of credit lines and narrowed loan rate spreads on loans to large and middle-market firms. In addition, moderate net shares of banks increased the maximum maturity of loans, reduced the cost of credit lines and premiums charged on riskier loans, and eased loan covenants on such loans. Moderate net fractions of banks narrowed loan rate spreads and increased the maximum maturity on loans to small firms.
Almost all domestic banks that reportedly eased standards or terms on C&I loans over the past three months cited increased competition from other lenders as a reason for easing. In addition, significant fractions of banks mentioned a more favorable or less uncertain economic outlook, increased tolerance for risk, and increased liquidity in the secondary market for these loans as important reasons for easing.
Over the second quarter of the year, a modest net share of foreign banks reportedly eased C&I loan standards. Foreign banks also eased several terms on C&I loans; moderate net fractions reportedly narrowed loan rate spreads, increased the maximum size of credit lines, and eased loan covenants.
A modest net percentage of domestic banks reported stronger demand for C&I loans by small firms in the second quarter, while demand for loans by large and middle-market firms was little changed. Foreign banks reported that demand for C&I loans remained about unchanged. The number of inquiries from potential borrowers reportedly rose for a modest net share of domestic banks and was about unchanged at foreign banks.
Major shares of domestic banks that reported stronger C&I loan demand indicated that increases in customers’ accounts receivable, inventory, and merger or acquisition financing needs, as well as increased customer investment in plant or equipment were important reasons for stronger demand. Major shares of banks that reported weaker C&I loan demand cited increases in customers’ internally generated funds, reduced customer investment in plant or equipment, and customers’ borrowing having shifted to other lenders as important reasons.
