The April 2016 Senior Loan Officer Opinion Survey on Bank Lending Practices conducted by the Federal Reserve addressed changes in the standards and terms on, and demand for, bank loans to businesses and households over the past three months. This summary discusses the responses from 70 domestic banks and 22 U.S. branches and agencies of foreign banks.
The April survey results indicated that, on balance, banks tightened their standards on commercial and industrial (C&I) and commercial real estate (CRE) loans over the first quarter of 2016. 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.
The first of two sets of special questions asked banks 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 percent 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 percent 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. 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.
The second set of special questions asked banks 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.
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, 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 reportedly were 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.
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.
On balance, banks reported that terms across all categories of consumer loans remained basically unchanged over 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.
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: A moderate net fraction of banks reported that they had increased premiums charged on riskier loans, a modest net fraction of banks reported that loan covenants had tightened, and most other terms to such firms remained basically unchanged on net. Banks reported mixed responses regarding changes in loan terms for small firms. A majority of the domestic respondents that tightened either standards or terms on C&I loans over the past three months cited a less favorable or more uncertain economic outlook as well as a worsening of industry-specific problems affecting borrowers as important reasons. Meanwhile, a significant net fraction of foreign respondents reported a tightening of lending standards for C&I loans.
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 plant 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. Furthermore, a moderate net fraction of foreign bank respondents reported that demand for C&I loans weakened over the first quarter of 2016.
On net, 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.
During the first quarter of 2016, on balance, banks indicated that they had experienced stronger demand for all three types of CRE loans. Moderate net fractions of banks reported stronger demand for construction and land development loans and loans secured by nonfarm nonresidential properties, and a modest net fraction of banks reported stronger demand for loans secured by multifamily residential properties. Meanwhile, nearly all foreign banks reported leaving CRE lending standards basically unchanged, while a significant net fraction of foreign banks reported experiencing weaker demand for such loans.