Banks Ease Standards, Terms for C&I Loans to Large, Midsize Firms
May 7, 2019
A small net percentage of banks reported easing standards and terms for loans to large and midsize firms in the previous quarter, while on net no banks eased standards for small businesses, according to the Federal Reserve’s latest senior loan officer opinion survey released yesterday. For large and midsize firms, about a quarter of banks narrowed spreads, while a little less than 15% did the same for smaller firms. Small net percentages reported tightening collateralization requirements and increasing the use of interest rate floors for both large and small firms, as well as raising premiums charged on riskier loans to small firms.
Banks that tightened cited the economic outlook and reduced risk tolerance as major factors. Meanwhile, half (up from 12.5% two quarters before) cited “increased concerns about the effects of legislative changes, supervisory actions or changes in accounting standards” as a somewhat important reason for tightening, possibly a continued signal of the prospective effects of implementing the Current Expected Credit Loss model for loan loss accounting. Nearly all banks that eased cited more aggressive competition as a somewhat or very important reason. Net percentages of banks reported weaker business loan demand from both large and small firms.
A long-running trend toward tightening on commercial real estate loans continued, with moderate net percentages tightening across all CRE categories—by double digits on construction loans. Banks reported moderately weaker demand for CRE loans. Banks tightening standards for CRE loans tended to cite reduced risk tolerance and a less favorable or less certain CRE market outlook; those easing standards generally cited competitive factors. Amid the weaker demand and despite tighter standards, net double-digit percentages of banks eased terms in all CRE categories with increased maximum loan sizes and narrower spreads.
A handful of banks on net eased loan standards for residential mortgages as demand was perceived to weaken. Standards for home equity lines of credit remained largely unchanged even as about a quarter of banks reported weaker demand. About 15% of banks reported tightened standards on credit cards, while standards for car loans were largely unchanged. Read more.