Federal Reserve Board survey: industrial lending standards tighten
A survey in January of senior loan officers on bank lending practices shows business loan standards tightened amid weaker demand for commercial and industrial (C&I) loans to firms of all sizes over the fourth quarter. Banks also reported tighter standards and weaker demand for all commercial real estate (CRE) loan categories.
While banks, on balance, reported having tightened lending standards further for most loan categories in the fourth quarter, lower net shares of banks reported tightening lending standards than in the third quarter across all loan categories.
The January survey also included a set of special questions inquiring about banks’ expectations for changes in lending standards, borrower demand, and loan performance over 2024. Banks, on balance, reported expecting lending standards to remain basically unchanged for C&I and RRE loans, but to tighten further for CRE, credit card, and auto loans. In addition, banks reported expecting loan demand to strengthen across all loan categories, and loan quality to deteriorate across most loan types.
Lending to Businesses
Over the fourth quarter, moderate net shares of banks reported having tightened standards on C&I loans to firms of all sizes. Banks also reported having tightened most queried terms on C&I loans to firms of all sizes over the fourth quarter.
Tightening was most widely reported for premiums charged on riskier loans, spreads of loan rates over the cost of funds, costs of credit lines, and collateralization requirements, while significant or moderate net shares of banks reported tightening most other terms on C&I loans to firms of all sizes.
Tightening of C&I lending standards and terms was less widely reported by large banks than by other banks for loans to firms of all sizes. Regarding foreign banks, moderate net shares reported tightening standards on C&I loans and terms such as C&I loan covenants, while modest net shares reported tightening other terms, including the costs of credit lines, premiums charged on riskier loans, the maximum maturity of loans or credit lines, and collateralization requirements.
Major net shares of banks that reported having tightened standards or terms on C&I loans cited a less favorable or more uncertain economic outlook, a reduced tolerance for risk, less aggressive competition from banks or nonbank lenders, and deterioration in their current or expected liquidity position as important reasons for doing so.
Significant net shares of banks also cited the worsening of industry-specific problems; decreased liquidity in the secondary market for C&I loans; increased concerns about the effects of legislative changes, supervisory actions, or changes in accounting standards; and deterioration in their current or expected capital position as important reasons for tightening lending standards and terms over the fourth quarter.
Regarding demand for C&I loans over the fourth quarter, significant net shares of banks reported weaker demand for loans from firms of all sizes. Furthermore, a significant net share of banks reported a decrease in the number of inquiries from potential borrowers regarding the availability and terms of new credit lines or increases in existing lines. Meanwhile, foreign banks reported that demand for their C&I loans remained basically unchanged.
Of the banks reporting weaker demand for C&I loans, major net shares cited decreased customer investment in plant or equipment and decreased financing needs for inventories, accounts receivable, and mergers or acquisitions as important reasons for the weaker loan demand.
Questions on commercial real estate lending.
Over the fourth quarter, significant net shares of banks reported tightening standards for all types of CRE loans. Such tightening was more widely reported by other banks than by large banks.7 Major net shares of banks reported weaker demand for loans secured by nonfarm nonresidential and multifamily residential properties, and a significant net share of banks reported weaker demand for construction and land development loans. Similarly, significant net shares of foreign banks reported tighter standards and weaker demand for CRE loans over the fourth quarter.
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