WASHINGTON–During the first quarter of 2016, the nation’s banks, on balance, tightened their standards on commercial and industrial (C&I) and commercial real estate (CRE) loans over the first quarter of 2016, according to the April 2016 Senior Loan Officer Opinion Survey on Bank Lending Practices conducted by the Federal Reserve.
The survey, based on responses from 70 domestic banks and 22 U.S. branches and agencies of foreign banks, also uncovered trends in consumer lending. Among the findings:
- The survey results indicated that demand for C&I loans had weakened and that demand for CRE loans had strengthened during the first quarter on net.
- When asked about lending to firms in the oil and natural gas drilling or extraction sector, the majority of domestic banks reported that loans to firms in this sector account for less than 5% of their outstanding C&I loans. In contrast, the majority of foreign banks reported that loans to firms in this sector account for more than 5% of their outstanding C&I loans. On balance, both domestic and foreign banks expect delinquency and charge-off rates on such loans to deteriorate over 2016 and noted that they were undertaking several actions to mitigate the risk of loan losses, the FDIC said. In addition, on balance, banks indicated that the credit quality of loans made to businesses and households located in regions of the United States that are dependent on the energy sector had deteriorated somewhat.
- When asked about their CRE lending policies and securitization activity, on balance banks reported leaving most CRE loan terms unchanged over the past year. In response to conditions in the commercial mortgage-backed securities (CMBS) market over the past six months, on balance, banks reported increasing the volume of origination of CRE loans while decreasing the volume of CRE loan securitization.
- When asked about the anticipated large amount of CRE loans originated in 2006 and currently held in CMBS that will need to be refinanced over the next six months, some banks noted they expect standards for these refinancings to be somewhat tighter than the standards they expect to apply to other CRE loans.
- Regarding loans to households, banks reported having eased lending standards on most types of residential real estate (RRE) mortgage loans, while demand for these loans strengthened over the first quarter. Modest net fractions of banks reported easing lending standards on credit cards and other consumer loans, whereas lending standards for auto loans remained basically unchanged. Over the first quarter, banks reported stronger demand across all consumer loan categories.
- The Fed said that on balance, a moderate net fraction of banks reported a tightening of lending standards for C&I loans to large and middle-market firms over the past three months. Meanwhile, only a modest net fraction of banks reported tightening lending standards for C&I loans to small firms. Banks reported that they tightened some C&I loan terms for large and middle-market firms.
- Regarding the demand for C&I loans, on balance, a modest net fraction of large banks reported that demand from large and middle-market firms was weaker during the first quarter, whereas demand remained basically unchanged for loans to small firms. Among the banks that reported weaker loan demand, customers' decreased investment in plants or equipment was the most commonly cited reason, though customers' reduced needs to finance merger and acquisition activity, accounts receivable, and inventories were also cited by the majority of respondents.
- On net, the FDIC said survey respondents indicated that their lending standards for CRE loans of all types tightened during the first quarter. A significant net fraction of banks reported tightening standards for construction and land development loans and loans secured by multifamily residential properties, whereas a moderate net fraction of banks reported tightening standards for loans secured by nonfarm nonresidential properties.
Mortgage Loans
- During the first quarter, a moderate net fraction of banks reported having eased standards on GSE-eligible loans, while a modest net fraction of banks reported having eased standards on QM and non-QM jumbo residential mortgage loans as well as on QM non-jumbo non-GSE-eligible and non-QM non-jumbo residential mortgage loans. Meanwhile, banks left lending standards basically unchanged for all other categories of RRE loans on net.
- Over the first quarter of 2016, banks reported stronger demand for most categories of RRE mortgage loans. In particular, a significant net fraction of banks reported stronger demand for GSE-eligible and QM jumbo residential mortgages. At the same time, a moderate net fraction of banks reported stronger demand for government, QM non-jumbo non-GSE-eligible, and non-QM jumbo residential mortgages, and a modest fraction of banks reported stronger demand for non-QM non-jumbo residential mortgages. Credit standards were reportedly little changed for approving applications for revolving home equity lines of credit, and a moderate fraction of banks reported that demand for revolving home equity lines of credit had strengthened on net.
Consumer Loans
- A moderate net fraction of banks indicated that they were more willing to make consumer installment loans during the first quarter compared with three months prior. Over the first quarter, a modest net fraction of banks reported easing lending standards on credit cards and other consumer loans, whereas lending standards for auto loans remained basically unchanged. On balance, banks reported that terms across all categories of consumer loans remained basically unchanged over the first quarter. Banks generally reported that demand for consumer loans had strengthened in the first quarter: Moderate net fractions of banks reported stronger demand for auto loans and consumer loans other than credit card and auto loans, whereas a modest net fraction reported that demand for credit card loans strengthened during the first quarter.