April 2013
The April 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices
Current survey | Full report (353 KB PDF)Table 1 | Table 2 | Chart data
Table 1 (PDF) | Table 2 (PDF) | Charts (PDF)
The April 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices addressed changes in the supply of, and demand for, bank loans to businesses and households over the past three months. This summary is based on responses from 68 domestic banks and 21 U.S. branches and agencies of foreign banks.1 In the April survey, domestic banks, on balance, reported having eased their lending standards and having experienced stronger demand in several loan categories over the past three months.2
The survey results generally indicated that banks’ policies regarding lending to businesses eased over the past three months and demand increased, on balance. In particular, a relatively large fraction of domestic respondents reported having eased standards on C&I loans, and moderate to large net fractions of such respondents reportedly eased many terms on C&I loans to firms of all sizes.3 Banks that eased their C&I lending policies generally cited increased competition for such loans as an important reason for having done so. Demand for C&I loans also reportedly increased, but such reports were less widespread than in the previous survey. A moderate net fraction of banks reported having eased their CRE lending standards over the past three months and relatively large fractions continued to report an increase in demand for such loans. On net, U.S. branches and agencies of foreign banks reported that standards on CRE loans were about unchanged, but moderate fractions reported that demand strengthened on such loans.
On the household side, the survey results were more mixed. On balance, a few domestic banks reported having eased standards on prime residential mortgages over the past three months. For the fifth consecutive survey, respondents reported that demand for prime residential mortgage loans had strengthened on net. A small net fraction of respondents reported that they had eased standards on credit card and auto loans over the past three months, while standards on other consumer loans had remained about unchanged. On balance, banks reported having eased selected terms on auto loans, but terms on credit card and other consumer loans were reportedly little changed. Demand for credit card and auto loans had strengthened, on balance, while demand for other consumer loans was about unchanged.
The survey included three sets of special questions: the first set asked banks about lending to and competition from banks headquartered in Europe, the second set asked banks about their residential real estate (RRE) lending policies, and the third set asked banks about their lending policies on private student loans. In response to the first set, both foreign and domestic respondents reported that their standards for loans to European banks remained basically unchanged, and the share of domestic banks that indicated increased demand owing to reduced competition from European banks continued to trend down. In response to the second set, most banks indicated that their willingness to approve GSE-eligible home-purchase loan applications to borrowers with FICO scores of 680 or 720 was about unchanged relative to a year ago. In contrast, about one-third of respondents indicated that they were less likely to approve home-purchase loan applications insured by the Federal Housing Administration (FHA) with relatively low FICO scores. Finally, only a small number of respondents indicated that they offer private student loans and, among those that provide such loans, lending policies were about unchanged over the past year.
Business Lending
(Table 1, questions 1–11; Table 2, questions 1–10)
Questions on commercial and industrial lending. A moderate fraction of domestic survey respondents, on net, indicated that their C&I lending standards had eased somewhat for all firm sizes over the first quarter of 2013. On balance, respondents reported that they had eased most terms on C&I loans, regardless of firm size, and that no such terms were tightened. As has been the case for some time, there was considerable variation in the number of banks that reported having eased various C&I loan terms. A very large fraction of respondents indicated that they had decreased spreads on C&I loan rates over their bank’s cost of funds for firms of all sizes. Moderate to large net fractions of banks again reported having reduced the cost of credit lines and decreased the use of interest rate floors for all firm sizes. In addition, about one-half of large domestic banks reported having eased loan covenants for large and middle-market firms in the April survey, up from 30 percent in the January survey.
Of the domestic respondents that reported having eased either standards or terms on C&I loans over the past three months, all but one cited more-aggressive competition from other banks or nonbank lenders as an important reason for having done so. About 40 percent of respondents that had eased their C&I loan policies cited a more favorable or less uncertain economic outlook as a somewhat important or very important reason. As in the previous survey, no other reasons were broadly cited by banks as being important for easing their C&I lending policies.
Meanwhile, responses from domestic banks indicated that the change in demand for C&I loans was mixed in the first quarter, with large banks reporting weaker demand for C&I loans, on balance, and other banks reporting stronger demand.4 Large banks also reported a net decrease in the number of inquiries from potential business borrowers regarding new or increased credit lines, while other banks reported net increases. Banks reporting weaker C&I loan demand in the survey most often cited decreases in customers’ funding needs related to investment in plant or equipment as a reason. Banks indicating that C&I loan demand had strengthened cited increases in customers’ funding needs related to investment in plant or equipment, inventories, and accounts receivable as the top reasons.
Similar to the previous two surveys, foreign respondents reported that their C&I lending standards had remained about unchanged, on net, over the past three months, but that some terms had been eased. A moderate net fraction of foreign respondents reported having narrowed C&I loan spreads over their cost of funds, increased the maximum size of credit lines, and reduced premiums charged on riskier loans. As was the case for domestic respondents, the reason most widely cited by foreign respondents for easing standards or terms on C&I loans was more-aggressive competition from other lenders. A majority of foreign respondents that eased standards or terms on C&I loans also pointed to increased liquidity in the secondary market for such loans as a reason for having done so. Modest net fractions of foreign respondents indicated that demand for C&I loans had strengthened over the past three months. Almost all foreign respondents reporting stronger demand cited customers’ increased merger or acquisition financing needs as a very important reason.
Special questions on lending to and competition from European banks. The April survey again included special questions about lending to banks headquartered in Europe and the affiliates and subsidiaries of European banks regardless of their location (hereafter, European banks). All respondents, both foreign and domestic, reported that their standards for loans to European banks remained basically unchanged over the past three months, the first time there was no additional tightening since the introduction of this special question in the October 2011 survey. The share of domestic banks that have observed an expansion of C&I lending business as a result of a decrease in competition from European banks continued to trend down. In fact, two respondents reported an increase in competition from European banks.
Questions on commercial real estate lending. A moderate net fraction of domestic respondents to the April survey reported that they had eased standards on CRE loans over the previous three months. Meanwhile, foreign respondents reported that standards were about unchanged. In addition, significant net fractions of domestic banks reported that demand for CRE loans had strengthened, while a moderate net fraction of foreign respondents also reported having experienced stronger demand for such loans.
Lending to Households
(Table 1, questions 12–32)
Questions on residential real estate lending. Overall, only small numbers of domestic respondents reported changes in either standards or demand for any type of residential real estate lending during the previous three months, with the exception of a significant net fraction of banks that indicated that the demand for prime mortgages had picked up. A few domestic banks reported having eased their standards on prime residential mortgages, and respondents’ lending standards for nontraditional mortgages were little changed.
Special questions on residential real estate lending. The April survey contained a set of special questions about domestic banks’ RRE lending policies. One such question asked banks how much more or less likely it currently is, compared with a year ago, that their bank would approve an application for a GSE-eligible, 30-year fixed-rate home-purchase loan from a borrower with a FICO score (or equivalent) of 620, 680, or 720 and a down payment of 10 or 20 percent (for a total of six categories of borrowers). Modest to moderate net fractions of banks indicated that they were currently less likely to approve such loan applications with a FICO score of 620, depending on the down payment, though most of those were smaller banks. Willingness to approve applications for most of the other FICO score-down payment categories was reportedly about unchanged from a year ago. However, a modest net fraction of banks were more likely to approve an application with a FICO score of 720 and a 20 percent down payment. Banks were also asked to compare their bank’s current likelihood of approving an application for an FHA-insured home-purchase loan with a given FICO score and the FHA minimum down payment of 3.5 percent with their likelihood a year ago. About one-third of respondents indicated that they were less likely to approve such home-purchase loan applications with FICO scores of 580 or 620.
Two other special questions asked banks about factors currently restraining their willingness or ability to approve either conforming or nonconforming home-purchase loans, and whether those factors had become more important or less important restraints over the past year. Roughly three-fourths of respondents viewed either the outlook for house prices or economic activity as at least somewhat important factors currently restraining their bank’s RRE lending. Three-fourths of banks also cited the risk of putback of delinquent mortgages by the GSEs as an important factor restraining their current ability or willingness to approve home-purchase loans, and in response to the second question, a large fraction of banks reported an increase in the importance of this factor over the past year. Four-fifths of respondents indicated that the “risk-adjusted profitability of the residential mortgage business relative to other possible uses of funds” was an important factor restraining RRE lending, and a large fraction of banks also reported an increase in the importance of this factor over the past year.
The last special question on RRE asked domestic banks to look ahead over the next year with regard to holdings of RRE assets—loans, agency mortgage-backed securities (MBS), and private-label MBS. On balance, respondents anticipate reducing their holdings of private-label MBS, while banks expected holdings of agency MBS to remain about unchanged. A moderate net fraction of banks reportedly expect to increase holdings of RRE loans. Overall, a moderate net fraction of banks expect to increase holdings of RRE assets.
Questions on consumer lending. Responses from domestic banks indicated that they are somewhat more willing to make consumer installment loans now as opposed to three months ago. However, only a small net fraction of banks reported having eased standards on credit card loans and auto loans, and respondents’ standards on other consumer loans reportedly remained about the same. On balance, several banks reported that they had increased the maximum maturity of auto loans and reduced spreads on such loans. Other terms across the three categories of consumer loans remained little changed, on net, over the past three months. Demand for credit card and auto loans was modestly stronger on net, and demand for other consumer loans was reportedly about unchanged.
Special questions on private student loans. The April survey also contained a set of special questions on private student loans. Only 14 of the 68 domestic respondents indicated that they currently hold private student loans. On balance, the banks that are still active in this market reported that their lending policies on private student loans changed little, on net, over the past year. Looking ahead, banks indicated that they expected to keep their holdings of private student loans about unchanged over the next year, on net.
1Respondent banks received the survey on or after April 2, 2013, and responses were due by April 16, 2013. Return to text
2For questions that ask about lending standards or terms, reported net fractions equal the fraction of banks that reported having tightened standards (“tightened considerably” or “tightened somewhat”) minus the fraction of banks that reported having eased standards (“eased considerably” or “eased somewhat”). For questions that ask about demand, reported net fractions equal the fraction of banks that reported stronger demand (“substantially stronger” or “moderately stronger”) minus the fraction of banks that reported weaker demand (“substantially weaker” or “moderately weaker”). Return to text
3The survey asks respondents separately about their standards for and demand from large and middle-market firms, which are generally defined as firms with annual sales of $50 million or more, and small firms, those with annual sales of less than $50 million. Return to text
4Large banks are defined as those with total domestic assets of $20 billion or more as of December 31, 2012. Return to text
This document was prepared by Cindy Vojtech, with the assistance of Holly Dykstra, Division of Monetary Affairs, Board of Governors of the Federal Reserve System.