Commercial and industrial loan standards tightened over the past three months as banks became more risk-averse and grew increasingly wary of worsening economic conditions, according to the Federal Reserve’s July Senior Loan Officer Opinion Survey on Bank Lending Practices.
The tightened standards came after several quarters of eased requirements, according to the survey, which included responses from 69 domestic banks and 18 foreign banks with U.S. branches and agencies. Despite tightened lending standards, senior loan officers said demand remained strong as customers sought to finance inventory and meet their financing needs for mergers and acquisitions.
“Significant net shares of banks also cited 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 less aggressive competition from other banks or nonbank lenders,” the report stated.
Senior loan officers reported tighter lending standards and less demand in most commercial real estate categories. They expect lending standards to continue to tighten during the second half of this year due to an anticipated drop in collateral values, borrower debt-servicing capacity, high inflation and other factors.
“Moderate net shares of banks reported having increased costs of credit lines and widening the spreads of loan rates over the cost of funds to both large and middle-market firms and to small firms,” the report stated. “A moderate net share of banks also reported increased collateralization requirements for large- and middle-market firms.”
Lending standards remained unchanged for all consumer loan categories, including credit card, auto and other categories. Demand weakened for auto loans and was stronger for consumer loans.