The January 2010 Senior Loan Officer Opinion Survey on Bank Lending PracticesFull report (421 KB PDF)
The January 2010 survey addressed changes in the supply of, and demand for, loans to businesses and households over the past three months. The survey also included three sets of special questions: The first set asked banks to compare the delinquency rate of commercial and industrial (C&I) loans made to small firms to the delinquency rate of such loans made to large and middle-market firms, the second set asked banks about changes in policies on commercial real estate (CRE) loans over the past year, and the third set asked banks about their outlook for the credit quality of a number of categories of loans in 2010. This summary is based on responses from 55 domestic banks and 23 U.S. branches and agencies of foreign banks.1
The January survey indicated that commercial banks generally ceased tightening standards on many loan types in the fourth quarter of last year but have yet to unwind the considerable tightening that has occurred over the past two years. The net percentages of banks reporting tighter loan terms continued to trend lower.2 Banks reported that loan demand from both businesses and households weakened further, on net, over the survey period.
For many major loan categories covered by the survey, the net percentages of respondents that tightened standards in the fourth quarter of 2009 were close to zero. However, banks continued to tighten a number of terms on loans to both businesses and households, although the net fractions of banks that reported doing so in the January survey generally stepped down again. Banks' policies on commercial real estate lending were an exception, as large net fractions of respondents further tightened their credit standards during the final quarter of last year. In addition, banks reported that they had tightened terms on CRE loans substantially over the past year.
Demand from both businesses and households for all major categories of loans weakened further, on net, over the past three months. The net fractions of banks that reported weaker demand for business loans continued to decline, while changes in the comparable readings on demand for loans to households were mixed.
In response to a special question on the delinquency rates on C&I loans on banks' books at the end of the fourth quarter, banks indicated that this rate on C&I loans to small firms was higher than the rate for large and middle-market firms. In response to the set of special questions on the outlook for asset quality in 2010, banks indicated that the outlook for delinquencies and chargeoffs in the current year was more positive for large and middle-market firms than for small firms. Additionally, the majority of banks indicated that their outlook for the change in credit quality in 2010 was more balanced relative to their pessimistic outlook, when asked one year ago about the outlook for the change in credit quality in 2009. Outside of commercial and prime residential mortgages, banks generally expect asset quality to stabilize this year.
Lending to Businesses
(Table 1, questions 1-10; Table 2, questions 1-10)
Questions on commercial and industrial lending. Overall, banks reported little net change in their standards for C&I loans in the fourth quarter of 2009. However, moderate net percentages of domestic banks continued to tighten both price and nonprice terms on C&I loans to large and middle-market firms as well as to small firms. In general, the net fractions of banks that reported further tightening of loan terms over the past three months were considerably below those from recent surveys, though the net fraction of banks that reported further increases in loan rate premiums for risky borrowers remained somewhat elevated. Some of the largest domestic banks (those with assets greater than $20 billion) reported having eased loan terms to large and middle-market firms, particularly terms pertaining to loan maturities and loan spreads. Similarly, branches and agencies of foreign banks reported, on net, that they had eased most loan terms over the past three months. Almost all of the domestic and foreign institutions that reported having eased credit standards or loan terms over the past three months cited more aggressive competition from other banks or nonbank lenders as an important reason for the change in their lending posture. In addition, a majority of banks that eased some of their loan terms cited a more favorable or less uncertain economic outlook as an important reason for the change in their credit policies.
In contrast, moderate net percentages of smaller domestic bank respondents (those with total assets below $20 billion) continued to tighten terms on loans to firms of all sizes. The net fractions of domestic banks that tightened terms on loans to small firms were generally a little larger than the net fractions that tightened terms on loans to large and middle-market firms. Most banks that tightened standards and terms continued to point to a less favorable or more uncertain economic outlook as one of the reasons for the tightening, and many banks reported reduced tolerance for risk as well.
At domestic banks, demand for C&I loans from firms of all sizes weakened further, on net, over the past three months. The net fraction that reported weaker demand was somewhat smaller than it was in the October survey. In contrast, foreign institutions reported that loan demand was unchanged, on net, over the same period. Almost all banks that reported weaker loan demand indicated that their customers' financing needs for investment in plant or equipment had decreased as had needs to finance inventory and accounts receivable. Most of the handful of banks that experienced an increase in loan demand cited a shift in customer borrowing to their banks from other credit sources, as well as customers' increased need to finance mergers or acquisitions and accounts receivable. The number of inquiries for new or expanded C&I credit lines weakened again, on net, at domestic banks, but at a more moderate pace than in recent quarters; foreign institutions, in contrast, reported little change in the number of inquires for new or expanded C&I credit lines over the survey period.
Special question on delinquency rates on C&I loans by firm size. In response to a special question about the quality of C&I loans on banks' books in the fourth quarter, banks reported higher delinquency rates on loans to small firms than on loans to large and middle-market firms. On net, nearly 65 percent of domestic respondents indicated that at the end of the fourth quarter of 2009, the delinquency rate on their outstanding loans to small firms was higher than the rate on outstanding loans to large and middle-market firms.
Questions on commercial real estate lending. In contrast to C&I lending, a substantial share of domestic banks, on net, reported having tightened standards on CRE loans and having experienced weaker demand for such loans again in the fourth quarter of 2009. Moderate net fractions of foreign banks also reported having tightened standards on CRE loans and having seen weaker demand for such loans over the past three months.
Special question on commercial real estate lending. In response to a special question (repeated on an annual basis since 2001), large net fractions of both domestic and foreign institutions again reported having tightened a range of terms on CRE loans over the course of 2009. The largest net tightening was reported on the spreads of loan rates over banks' cost of funds, debt-service coverage ratios, and loan-to-value ratios.
Lending to Households
(Table 1, questions 11-21)
Questions on residential real estate lending. Banks continued to tighten standards on residential real estate loans over the past three months. In line with recent patterns, a small net fraction of banks tightened standards on prime residential real estate loans over that period, and somewhat larger net fractions of banks tightened standards on nontraditional residential real estate loans. In addition, a moderate net fraction of banks reported weaker demand from prime borrowers for residential real estate loans. Demand from customers seeking nontraditional mortgages also weakened further over the survey period. Only a small net fraction of banks reported having tightened standards on revolving home equity lines of credit over the past three months, but a large net fraction of banks continued to report lower demand for such loans.
Question on consumer lending. For the first time in nearly three years, a small net fraction of banks reported an increased willingness to make consumer installment loans now as opposed to three months ago. However, demand for consumer loans of all types reportedly had weakened further since the previous survey.
Regarding credit card loans, a very small net fraction of banks reported having tightened standards on such loans over the past three months. However, substantial net fractions of banks indicated that they had reduced credit limits on credit cards and had become less likely to issue cards to customers not meeting credit scoring thresholds. A moderate fraction reported having increased spreads. These results are consistent with responses to the October 2009 survey, in which banks indicated that they would tighten a wide range of their credit card policies following the enactment of the Credit CARD Act. For consumer loans other than credit card loans, banks reported no change, on net, in their standards. Moreover, respondents indicated little change in most terms on such loans.
Special Questions on Banks' Outlook for Asset Quality
(Table 1, questions 22-24; Table 2, questions 11-12)
The January survey included a set of special questions that asked banks about their outlook for delinquencies and charge-offs across major loan categories in the current year, assuming that economic activity progresses in line with consensus forecasts. This set of special questions has been asked on an annual basis since 2006. In the previous two years, large majorities of banks expected widespread deterioration in credit quality over the coming year across all major loan categories. In this survey, by contrast, substantially fewer respondents reported having such expectations; banks anticipate significant additional deterioration in the quality of CRE loans, prime residential mortgages, and revolving home equity lines of credit this year, with the quality of other types of loans expected to change little or improve, on net.
Regarding C&I loans, a substantial net fraction of banks expect delinquencies and charge-offs of such loans to large and middle-market firms to decline in 2010. A much smaller net fraction of banks expect an improvement in the credit quality of C&I loans to small firms.
On the household side, a moderate net fraction of banks indicated that the credit quality of their prime residential mortgages and home equity loans would likely deteriorate further in 2010. However, banks expect portfolios of most other types of consumer and residential real estate loans to experience little further deterioration in credit quality this year--indeed, a moderate net share of banks expect some improvement in credit quality in other consumer loans.
1Respondent banks received the survey on or after December 29, 2009, and their responses were due by January 12, 2010. Return to text
2For questions that ask about lending standards, reported net percentages equal the percentage of banks that reported tightening standards ("tightened considerably" or "tightened somewhat") minus the percentage of banks that reported easing standards ("eased considerably" or "eased somewhat"). For questions that ask about demand, reported net fractions equal the percentage of banks that reported stronger demand ("substantially stronger" or "moderately stronger") minus the percentage of banks that reported weaker demand ("substantially weaker" or "moderately weaker"). Return to text
This document was prepared by Tara Rice and Jonathan Rose with the assistance of Thomas Spiller, Division of Monetary Affairs, Board of Governors of the Federal Reserve System.