WASHINGTON—During the fourth quarter of 2021 the nation’s banks reported they eased standards and terms on commercial and industrial (C&I) loans to borrowers of all sizes, while a “significant net shares of banks expected a deterioration in the quality of credit card loans to prime and nonprime borrowers and of auto loans to nonprime borrowers; according to the Federal Reserve’s just-released January senior loan officer opinion survey (SLOOS).
Moreover, a moderate net shares of banks expected the quality of auto loans to prime borrowers to worsen, while a modest net share of banks expected the quality of nonconforming jumbo mortgages to deteriorate.”
In addition, a significant net share of banks also eased standards for multifamily loans secured by multifamily properties, while moderate net shares of banks eased standards for construction, land development, and nonfarm nonresidential loans, the survey found.
“Banks are easing underwriting standards across a broad range of loan products, and they expect further easing in 2022,” stated NAFCU Chief Economist and Vice President of Research Curt Long. “This is despite the fact that banks do not see applicant quality improving noticeably. Credit unions should expect increased loan competition this year, both from banks and non-banks, which will continue to place pressure on net interest margins.”
The Findings
Other findings from the fourth-quarter survey:
- Banks reported easier lending standards for most RRE loan types and revolving home equity lines of credit (HELOCs)
- Banks eased standards for credit card, auto, and other consumer loans
- Banks reported stronger demand for credit card loans over the fourth quarter, while a modest net share of banks reported weaker demand for auto loans.
- The Fed said a significant net share of banks reported stronger demand for C&I loans from large and middle-market firms and a modest net share of banks reported stronger demand from small firms. Respondents overall reported eased standards and greater demand for commercial real estate (CRE) lending.
- Despite having eased standards for most RRE loan types and home equity lines of credit (HELCs), survey respondents generally reported weaker demand for RRE loans over the fourth quarter, while demand for HELCs remained basically unchanged “on net.”
- Standards generally eased for credit card, auto, and other consumer loans. Demand was up for credit card loans, weaker for auto loans, and basically unchanged for other consumer loan types.
- The Fed noted that on balance, banks reported expecting lending standards to ease further and loan demand to strengthen, but they reported mixed expectations about loan quality.
- Loan quality, as measured by delinquencies and charge-offs, is expected to rise for business loans in portfolio over 2022, but banks noted expectations of a deterioration in the quality of household loans, the report notes.
Additional Forecast
The January survey also included a set of special questions inquiring about banks' expectations for changes in lending standards, borrower demand, and asset quality over 2022, assuming that economic activity would evolve in line with consensus forecasts. On balance, banks reported expecting lending standards to ease further and loan demand to strengthen.
The senior loan officer survey was based on responses from 69 domestic banks and 21 U.S. branches and agencies of foreign banks.
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