Senior Loan Officer Opinion Survey on
Bank Lending Practices

The November 2000 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. Supplementary questions addressed the extent to which tighter business lending policies have affected different customer groups and loan categories, the degree to which recent increases in delinquency rates on commercial and industrial (C&I) loans had been anticipated, and banks' expectations about changes in credit policies over the coming year. Loan officers from fifty-seven large domestic banks and twenty-four U.S. branches and agencies of foreign banks participated in the survey.

Over the past three months, large fractions of foreign and domestic banking institutions -- 80 and 44 percent respectively -- reported tightening lending standards for C&I loans to large and medium-sized firms, and many respondents tightened loan terms as well. About a quarter of domestic and foreign respondents also tightened standards for commercial real estate loans. On net, demand for C&I and commercial real estate loans was reported to have weakened somewhat over the past three months.

Over the past year, domestic banks applied tighter standards and terms most aggressively on C&I loans intended to finance mergers and acquisitions (M&As) as well as to new customers seeking loan commitments. Branches and agencies of foreign banks applied tighter policies more evenly across customer and loan categories, though they most often targeted lending to selected industries. Looking ahead, more than half of both domestic and foreign respondents indicated that they anticipate a further tightening of standards and terms on C&I loans before the end of 2001. Substantial net fractions of both domestic and foreign institutions reported that the increase in C&I loan delinquency rates over the past two years was somewhat greater than expected.

While a large percentage of domestic banks tightened lending policies in the business sector, credit standards for all types of household lending were little changed over the past three months. Almost all domestic banks reported unchanged standards for residential mortgage loans, and only a handful of banks had tightened standards and terms for all types of consumer loans. Demand for both residential mortgages and consumer loans reportedly weakened over the past three months.

Lending to Businesses
(Table 1, questions 1-10; Table 2, questions 1-10)

On net, more than 40 percent of domestic banks reported a tightening of standards on C&I loans to large and middle-market firms over the past three months; for loans to small firms, only about a quarter of domestic banks indicated that they had tightened standards. A full 80 percent of branches and agencies of foreign banks reported somewhat tighter standards on C&I loans over the same period. Looking ahead over the next year, more than half of domestic banks and two-thirds of foreign respondents indicated that they anticipate a further tightening of standards and terms on C&I loans, assuming that the economy expands at a sustainable rate over that period.

At least a third of domestic and foreign institutions, on net, reported tightening each of the loan terms listed in the survey for large and middle-market firms over the past three months. Somewhat smaller net percentages of domestic banks tightened terms on C&I loans to small firms. Two-thirds of domestic respondents and three-quarters of foreign branches and agencies noted charging higher premiums on riskier loans to large and middle-market firms, with no bank easing in this category. On net, about half of both domestic and foreign institutions also indicated a general increase in spreads of loan rates over their cost of funds to these firms.

Among both domestic and foreign institutions that had tightened standards or terms on C&I loans, the reasons most often cited for doing so were a less favorable or more uncertain economic outlook, a worsening of industry-specific problems, and a reduced tolerance for risk. A significant fraction of foreign respondents also mentioned an increase in defaults by below-investment-grade borrowers in public debt markets as a reason for tightening their lending policies.

The November survey included a special question to determine which customer groups and loan categories had been most affected by the tighter standards and terms that have been reported over the past year. Loans to finance mergers and acquisitions were most frequently mentioned as affected by tighter underwriting standards by domestic banks, which also claimed to be clamping down somewhat more on applications from new customers seeking loan commitments. Tightening at branches and agencies of foreign banks appears to have been somewhat more evenly applied across customer groups and loan categories, though firms in selected industries and new customers seeking loan commitments were most frequently cited. Among all the respondents, numerous institutions noted that they had been especially cautious when lending to industries such as healthcare, movie theaters, and communications, and at least two banks singled out the textile, retail, trucking, and asbestos removal industries.

On net, 22 percent of domestic banks reported moderately weaker demand for C&I loans from large and middle-market firms, while almost 40 percent of foreign branches and agencies saw weaker demand over the past three months. A smaller net fraction of domestic banks reported decreased demand from small firms over the same period. Consistent with the slowdown in the pace of business investment during the third quarter, domestic banks that reported weaker loan demand most often cited a decrease in customer needs to finance capital expenditures, followed by reduced M&A financing requirements. A decrease in customers need for M&A financing was the most common response among foreign respondents that experienced weaker demand for C&I loans.

A special question addressed the extent to which banks had anticipated the gradual increase in C&I loan delinquency rates that has occurred over the past two years. The smaller respondents in the survey (domestic banks with less than $20 billion in assets) indicated that, on balance, their delinquency rates rose about in line with expectations. However, more than 60 percent of the larger domestic respondents and 55 percent of branches and agencies of foreign banks, on net, reported that they were somewhat surprised by how much the quality of their C&I loan portfolios had deteriorated. Moreover, several of the domestic banks indicated that the increase in C&I loan delinquency rates had been much greater than anticipated.

Lending to Households
(Table 1, questions 11-18)

Over the past three months, banks' credit standards for approving residential mortgage loans were largely unchanged. The falloff in the demand for home mortgage loans at banks slowed over the past three months on net, 33 percent of respondents reported somewhat weaker demand in the current survey, compared with 40 percent in the August survey.

Nearly all banks also indicated that their willingness to make consumer installment loans was unchanged from three months ago. However, a few banks, on net, tightened credit standards for both credit card and other consumer loans, and more than 10 percent of banks reported charging higher spreads of loan rates over their cost of funds as well. On net, 13 percent of domestic banks observed moderately weaker demand for all types of 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 (11.7 KB PDF)
Measures of lending practices from current and previous surveys
Chart data (ASCII)

Table 1 (25.1 KB PDF)
Summary of responses from U.S. banks

Table 2 (13.0 KB PDF)
Summary of responses from branches and agencies of foreign banks

Full report (268 KB PDF)