Senior Loan Officer Opinion Survey on
Bank Lending Practices

The August 2001 Senior Loan Officer Opinion Survey on Bank Lending Practices focused on changes in the supply of, and demand for, bank loans to businesses and households over the past three months. The survey included supplementary questions on the exposure of banks to firms in the high-technology sector and the degree to which credit standards and loan terms were tightened in that sector over the past year. Loan officers from fifty-seven large domestic banks and twenty U.S. branches and agencies of foreign banks participated in the survey.

Although the number of domestic and foreign banking institutions that reported tightening standards and terms on commercial and industrial (C&I) loans over the past three months remained elevated, it was lower than earlier in the year. A significant fraction of domestic institutions also tightened standards for commercial real estate loans in the August survey. In general, banks that tightened standards and terms on C&I loans indicated that the most important reasons for tightening were a less favorable or more uncertain economic outlook and a worsening of industry-specific problems. Almost half of domestic banks, on net, reported weaker demand for C&I loans over the past three months, about the same proportion as in the May survey. A somewhat larger net fraction than in May reported that demand for commercial real estate loans had waned.

Domestic banks reported that about 8 percent of C&I loans on their books were made to high-technology companies, indicating that their exposure to these firms is limited. By contrast, branches and agencies of foreign banks reported that loans to high-technology companies accounted for about 14 percent of their C&I loan portfolio. Domestic as well as foreign respondents noted that their tightening of credit standards and loan terms over the past year for tech firms was greater than that for similarly rated firms in other sectors (see the section below on lending to the high-tech sector for the definition of the sector used by the survey).

Compared with the January and May surveys, smaller net fractions of domestic banks tightened standards and increased spreads over their cost of funds for all types of consumer loans over the past three months. According to the domestic respondents, demand for consumer loans was about unchanged in August. Nearly all domestic banks kept their standards for residential mortgage loans unchanged over the past three months. About one-fourth of the respondents, on net, noted that demand for residential mortgages had strengthened during the survey period, down from almost one-half in the May survey.

Lending to Businesses
(Table 1, questions 1-5 and 11-12; Table 2, questions 1-5 and 11-12)

Although banks again reported that they tightened standards on C&I loans over the past three months, the fractions of domestic and foreign respondents doing so retreated for the second consecutive survey. The percentage of domestic banks that reported tightening standards on loans to large and middle-market firms--which peaked at 60 percent in the January survey and decreased to about 50 percent in the May survey--fell to 40 percent in August. Lending standards on business loans to small firms followed a similar pattern: 32 percent of domestic banks reported tightening standards over the past three months, down from 36 percent in May and 45 percent in January. The fraction of U.S. branches and agencies of foreign banks that reported tightening standards for customers seeking C&I loans fell from two-thirds in May to one-half in the August survey.

In the August survey, the net fractions of domestic banks that reported tightening each of the loan terms listed in the survey were similar to the net fractions in May. More than half of the domestic respondents reported charging higher premiums on riskier loans to large and middle-market firms; as has been the case for several surveys, no bank reported lowering these premiums. More than half of the domestic banks, on net, indicated that they had increased spreads of loan rates over their cost of funds for large and middle-market firms over the past three months. Almost half, on net, also increased fees on credit lines for these borrowers. Somewhat smaller net fractions of domestic respondents tightened terms on C&I loans to small firms.

Sixty percent of the U.S. branches and agencies of foreign banks reported charging higher premiums on riskier loans, and nearly the same fraction increased the fees associated with credit lines. Half of the foreign institutions also noted that they had increased spreads and tightened loan covenants over the past three months.

Most of the domestic and foreign respondents that had tightened standards or terms on C&I loans over the previous three months continued to cite a less favorable or more uncertain economic outlook, a worsening of industry-specific problems, and a reduced tolerance for risk as the most important reasons for changing their lending policies. In responses that were consistent with the elevated default rate on junk bonds, 52 percent of domestic banks and 87 percent of foreign institutions that had tightened commercial lending policies also mentioned an increase in defaults by below-investment-grade borrowers as a contributing reason.

More than one-half of the domestic banks, on net, reported weaker demand for C&I loans from large and middle-market firms, up from 40 percent in May; and more than one-third, on net, reported decreased demand from small firms. Most of the domestic banks that reported weaker loan demand cited reduced customer needs to finance capital expenditures and mergers and acquisitions. About two-thirds of domestic banks also mentioned lower demand for inventory financing, a result that is consistent with the ongoing inventory correction. On net, 20 percent of foreign branches and agencies saw weaker loan demand over the past three months, compared with 10 percent, on net, in the May survey.

More than 40 percent of domestic banks tightened standards on commercial real estate loans over the past three months, about the same as in the May survey. Almost 20 percent of foreign institutions that engage in commercial real estate lending also tightened standards in the current survey. On net, 32 percent of domestic and 10 percent of foreign institutions reported lower demand for commercial real estate loans over the past three months.

Lending to the High-Technology Sector
(Table 1, questions 6-10; Table 2, questions 6-10)

The current survey also included a series of special questions that addressed lending to high-technology firms over the past year. The survey defined the high-technology (or "tech") sector as consisting of the following five high-technology industries: (1) telecommunications service providers, (2) telecommunications equipment manufacturers, (3) internet commerce, (4) semiconductor manufacturers, and (5) computer hardware, software, and other high-tech industries.

About 8 percent, on average, of the volume of C&I loans on the books of domestic banks that responded to the questions was made to the firms in the high-technology sector; thus banks' exposures to this troubled sector appear to be limited. More than one-third of these technology loans were made to telecommunications service providers, with the second highest area of concentration in the computer hardware, software and other high-tech sectors group. Foreign institutions reported that about 14 percent of their outstanding C&I loans were accounted for by technology companies, of which telecommunications service providers represented about 40 percent.

Domestic and foreign institutions tightened credit standards and terms for C&I loans to technology companies more aggressively than for loans outside the high-tech sector over the past year. The constriction of credit supply conditions was particularly severe for below-investment-grade high-tech firms: 25 percent of domestic banks reported that they had tightened standards somewhat more and 44 percent indicated that they had tightened standards considerably more for C&I loans to lower-rated tech borrowers relative to their non-tech counterparts. For foreign respondents, those fractions were 24 percent and 71 percent, respectively.

In addition, about 50 percent of domestic banks indicated that they had increased price-related terms (such as fees and spreads) for investment-grade technology companies by more than they had for investment-grade non-tech firms. A greater number of domestic respondents, 72 percent, reported that they had toughened these terms for below-investment-grade tech firms relative to similarly rated firms in other sectors. This pattern of relative tightening was similar for non-price-related terms (such as loan covenants) at domestic banks and for both types of terms at branches and agencies of foreign banks.

Lending to Households
(Table 1, questions 13-20)

Over the past three months, domestic banks' credit standards for approving residential mortgage loans were largely unchanged. About one-fourth of the respondents, on net, reported that demand for residential mortgages increased over the past three months.

About 10 percent of domestic banks, on net, reported that they had tightened standards on credit card and other consumer loans over the survey period, down from 20 percent and 18 percent, respectively, in May. In addition, more than 10 percent of respondents increased the minimum required credit score for both categories of consumer loans. For consumer loans other than credit cards, 14 percent of domestic institutions, on net, increased spreads over their cost of funds, down from about one-fourth in the previous survey, but only a few banks increased spreads on credit card loans in August. On net, 5 percent of banks reported stronger demand for consumer loans over the past three months.

The charts and tables for this report are available in Acrobat (PDF) format. Obtaining the Acrobat Reader

Charts (12.7 KB PDF)
Measures of lending practices from current and previous surveys
Chart data (ASCII)

Table 1 (23.7 KB PDF)
Summary of responses from U.S. banks

Table 2 (14.2 KB PDF)
Summary of responses from branches and agencies of foreign banks

Full report (65.6 KB PDF)