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July 2015

The July 2015 Senior Loan Officer Opinion Survey on Bank Lending Practices

Current survey | Full report (826 KB PDF)
Table 1 | Table 2 | Chart data
Table 1 (PDF) | Table 2 (PDF) | Charts (PDF)

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The July 2015 Senior Loan Officer Opinion Survey on Bank Lending Practices addressed changes in the standards and terms on, and demand for, bank loans to businesses and households over the past three months.¹ This summary discusses the responses from 71 domestic banks and 23 U.S. branches and agencies of foreign banks.²

Regarding loans to businesses, the July survey results indicated that, on balance, banks reported little change in their standards on commercial and industrial (C&I) loans in the second quarter of 2015.³ In addition, banks reported having eased some loan terms, such as spreads and covenants, especially for larger firms on net. Meanwhile, survey respondents also reported that standards on commercial real estate (CRE) loans remained unchanged on balance. On the demand side, modest to moderate net fractions of banks indicated having experienced stronger demand for C&I and CRE loans during the second quarter.

Regarding loans to households, banks reported having eased lending standards for a number of categories of residential mortgage loans over the past three months on net. Most banks reported no change in standards and terms on consumer loans. On the demand side, moderate to large net fractions of banks reported stronger demand across most categories of home-purchase loans. Similarly, respondents experienced stronger demand for auto and credit card loans on net.

Responses to a set of annual questions on the level of lending standards suggested that banks' lending standards relative to longer term norms were notably different across major loan types. Domestic and foreign banks generally reported that standards for all categories of C&I loans remained either easier than or near the midpoints of their ranges over the past decade. After reporting that standards had eased on the quarterly surveys over the course of the past year, domestic banks also generally indicated that standards on most types of CRE loans were now somewhat easier than or near the midpoints of their ranges. However, despite shifts toward somewhat more accommodative credit policies for most types of loans to households over the past few years, moderate fractions of banks continued to report that the levels of standards for all types of residential real estate (RRE) loans and consumer loans to subprime borrowers were at least somewhat tighter than the midpoints of their bank's longer-term ranges.

Lending to Businesses
(Table 1, questions 1-12; Table 2, questions 1-8)

Questions on commercial and industrial lending. On balance, banks reported little change in lending standards for C&I loans to firms of all sizes over the past three months.⁴ Among the small number of banks that indicated that they had changed their C&I lending standards, reports of easing were somewhat more common. Moreover, banks continued to report having reduced costs of credit lines and narrowed loan spreads for both large and middle-market firms and smaller businesses on net. The number of banks that indicated that they had eased loan covenants or increased the maximum size of credit lines outnumbered those that reported tightening such terms, especially for larger firms. Meanwhile, all foreign respondents indicated that their C&I lending standards had remained basically unchanged, but a few of them reportedly increased the maximum size of credit lines.

Most domestic respondents that eased either standards or terms on C&I loans over the past three months cited more-aggressive competition from other banks or nonbank lenders as an important reason. Smaller numbers of banks also attributed the easing of loan terms to increased tolerance for risk or a more favorable or less uncertain economic outlook. In addition, the banks that reported having tightened either their standards or terms on C&I loans predominantly pointed to reduced tolerance for risk, worsening of industry-specific problems, or a less favorable or more uncertain economic outlook.

On balance, demand for C&I loans had increased during the second quarter, but the net fractions of banks reporting stronger demand were modest for firms of all sizes. Those banks that reported having seen stronger demand cited as reasons for the strengthening a wide range of customers' financing needs, particularly those related to accounts receivable, mergers or acquisitions, investment in plant or equipment, or inventories. Among the banks that reported weaker loan demand, a shift of borrowing away from their bank to other bank or nonbank sources was the most commonly cited reason. A modest net fraction of foreign banks also indicated that demand for C&I loans had strengthened over the second quarter of 2015.

Questions on commercial real estate lending. The majority of survey respondents indicated that their lending standards for CRE loans of all types had essentially remained unchanged relative to the first quarter. Moreover, the smaller numbers of banks that reported having eased standards on construction and land development (CLD) loans and loans secured by multifamily residential properties were about the same as those that had tightened standards on such loans. Meanwhile, a modest net fraction of banks eased lending standards on loans secured by nonfarm nonresidential (NFNR) properties, such as office buildings. Regarding changes in demand for CRE loans, the numbers of banks indicating that they had experienced stronger demand for all three types of CRE loans were somewhat larger than those reporting weaker demand. Similar to their domestic counterparts, foreign banks reported little change in their CRE lending standards while they indicated having experienced stronger demand for such loans on net.

Lending to Households
(Table 1, questions 13-26)

Questions on residential real estate lending. Modest net fractions of banks indicated that they had eased underwriting standards on residential mortgages with the exception of government-insured and subprime categories.⁵ The easing was more pronounced for jumbo residential mortgages that conform to the Consumer Financial Protection Bureau's qualified mortgage rules. Meanwhile, the vast majority of banks continued to report that they do not extend home-purchase loans to subprime borrowers. On the demand side, moderate to large to net fractions of banks reported stronger demand across most categories of home-purchase loans. On balance, lending standards were reportedly little changed for home equity lines of credit (HELOCs), and demand for such loans strengthened.

Questions on consumer lending. A small net fraction of banks indicated that they were more willing to make consumer installment loans over the past three months. A few large banks reported having eased their standards for credit card loans, while standards for approving applications for auto loans and other types of consumer loans were about unchanged on net. Moreover, a few large banks also reported that, on net, they had increased credit card limits and reduced minimum credit scores to extend such accounts. On balance, terms on auto loans or other consumer loans were about unchanged.

Regarding demand for consumer loans, a moderate net fraction of banks reported stronger demand for auto loans over the past three months. In addition, large banks also reported having experienced stronger demand for credit card loans on balance. Demand for other consumer loans was reportedly about unchanged at large banks and strengthened at other banks on net.

Special Questions on the Levels of Lending Standards
(Table 1, question 27; Table 2, question 9)

The July survey included a set of special questions that asked respondents to describe the current level of lending standards at their bank, rather than changes in standards over the survey period.⁶ Specifically, for each loan category surveyed, respondents were asked to consider the range over which their bank's standards have varied between 2005 and the present and then to report where the current level of standards for such loans resides relative to the midpoint of that range.

Domestic and foreign banks generally reported that lending standards on different kinds of C&I loans to large and middle-market firms remained at levels that were easier than or near the midpoints of their ranges since 2005.⁷ Lending standards for smaller firms, with annual sales of less than $50 million, have been gradually loosening over the past few years, and in the current survey, the majority of domestic respondents that extend loans to such firms indicated that their standards were easier than or near the midpoints of the respective ranges over the past decade. For very small firms, with annual sales of less than $5 million, a somewhat smaller fraction of banks indicated that lending standards were easier than the midpoints of the ranges that those standards have occupied since 2005.

Regarding the level of standards for CRE loans, domestic banks reported that the current level of standards on loans secured by multifamily properties and loans secured by NFNR properties were generally easier than or near the midpoints of their ranges. However, nearly half of the respondents reported that standards on CLD loans were tighter than the midpoints of their longer-term ranges. In general, survey responses are consistent with a gradual easing of lending standards for all three types of CRE loans from very tight levels that had prevailed during the most recent recession. However, the extent of easing appears to be more measured for the CLD category.

With respect to RRE loans, moderate fractions of domestic banks reported that lending standards for all five categories included in the survey (GSE-eligible mortgages, government-insured mortgages, jumbo mortgages, subprime mortgages, and HELOCs) remained at least somewhat tighter than the midpoints of the ranges that those standards have occupied since 2005. In addition, the measured easing of credit conditions for RRE loans during the economic recovery appear to be more pronounced for GSE-eligible and government-insured mortgages.

As for consumer loans, standards were reportedly easier than or near the midpoints of their ranges over the past decade for prime credit card borrowers. The vast majority of respondents indicated that standards were near the midpoints of their longer-term ranges for auto loans to prime borrowers as well as for other consumer loans. Relatively smaller numbers of banks offer credit card or auto loans to subprime borrowers, and their responses indicated that standards on such loans remained tighter than the midpoints of the corresponding ranges since 2005 on net.

This document was prepared by Emre Yoldas, with the assistance of Shaily Patel, Division of Monetary Affairs, Board of Governors of the Federal Reserve System.

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