July 2013
The July 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 July 2013 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. The survey also contained special questions about changes in banks' lending standards on, and demand for, the three main types of commercial real estate (CRE) loans over the past year, and on the current levels of banks' lending standards for many types of business and household loans relative to longer-term norms. In the July survey, domestic banks, on balance, reported having eased their lending standards and having experienced stronger demand in most loan categories over the past three months. This summary is based on the responses from 73 domestic banks and 22 U.S. branches and agencies of foreign banks.1
Regarding loans to businesses, the July survey generally indicated that banks eased their lending policies for commercial and industrial (C&I) and CRE loans and experienced stronger demand for such loans over the past three months.2 In particular, a moderate fraction of domestic respondents reported having eased their 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 Most banks that eased their C&I lending policies cited increased competition for such loans as an important reason for having done so. On net, respondents reported stronger demand for C&I loans over the second quarter, although a few large banks indicated that demand had weakened.4 A modest net fraction of foreign respondents indicated that they had eased standards on, and a moderate net fraction had experienced stronger demand for, C&I loans in the second quarter.
The survey results also indicated that banks eased standards and terms on, and saw increases in demand for, some categories of lending to households. Modest net fractions of respondents reported having eased standards on prime residential or nontraditional mortgage loans, and a large net fraction indicated that they had seen increased demand for prime mortgage loans. A moderate net fraction of respondents reported that they had eased standards on auto loans over the past three months, and small net fractions indicated that they had eased standards on credit card loans and other consumer loans. Demand for all three types of consumer loans asked about in the survey had reportedly strengthened, on balance, over the second quarter.
To complement the usual survey questions about total CRE lending, one set of special questions asked banks separately about changes in standards and demand over the past twelve months for each of the three main categories of CRE loans--construction and land development loans, loans secured by nonfarm nonresidential properties, and loans secured by multifamily residential properties. Banks reported having eased standards on, and having seen increased demand for, all three CRE loan categories over the past twelve months.
The second set of special questions, repeated from the July 2011 and July 2012 surveys, asked about the current levels of banks' lending standards relative to the midpoints of their ranges observed since 2005. Banks generally indicated that standards on C&I loans were currently somewhat easier than the midpoint of that range, while banks' current standards on other categories of business and household loans inquired about were reported to be at least somewhat tighter than the midpoint.
Business Lending
(Table 1, questions 1-14; Table 2, questions 1-14)
Questions on commercial and industrial lending. A moderate fraction of domestic survey respondents, on net, indicated that they had eased their standards for C&I loans to firms of all sizes over the second quarter of 2013. On balance, almost all terms on C&I loans were reportedly eased, regardless of firm size. In particular, sizable net fractions of respondents indicated that they had decreased spreads on C&I loan rates over their bank's cost of funds regardless of firm size. In addition, moderate to large net fractions of banks reported having reduced the cost of credit lines and decreased the use of interest rate floors for all firm sizes.
Of the domestic respondents that reported having eased either standards or terms on C&I loans over the past three months, all but two cited more-aggressive competition from other banks or nonbank lenders as an important reason for having done so. The next most popular reasons indicated by respondents that had eased their C&I loan policies were a more favorable or less uncertain economic outlook, cited by about half of such respondents as being a somewhat important reason, and an increased tolerance for risk, reported by about one-third of such respondents as being a somewhat important or very important reason.
Regarding changes in demand for C&I loans in the second quarter, a moderate net fraction of domestic banks indicated that they had experienced stronger demand from small firms, and a modest net fraction of domestic banks said demand from large and middle-market firms had increased. However, six large banks reported that they had experienced weaker demand from large and middle-market firms. Banks reporting stronger loan demand most often cited increases in customers' funding needs related to investment in plant or equipment, inventories, and accounts receivable as the top reasons. About half of banks experiencing stronger demand also cited shifts in customer borrowing to their bank from other bank or nonbank sources because those sources became less attractive. Banks reporting weaker demand for C&I loans most often cited decreases in customers' funding needs related to merger and acquisition financing, investment in plant or equipment, accounts receivable, or inventories as the top reasons. Slightly more than half of the banks that experienced weaker demand cited increases in their customers' internally generated funds, and about half reported shifts in customers' borrowing away from their bank because other sources of bank or nonbank borrowing became more attractive.
On balance, foreign respondents reported that they had eased their C&I lending standards over the past three months. Banks generally reported that terms on such loans were unchanged, in contrast to the previous three surveys in which they generally reported that they had eased. A moderate net fraction of foreign respondents indicated that demand for C&I loans had strengthened over the second quarter. Most foreign respondents reporting stronger loan demand cited customers' funding needs related to investment in plant or equipment or to merger or acquisition financing as somewhat important reasons.
Questions on commercial real estate lending. A moderate fraction of banks reported that they had eased their standards for approving applications for CRE loans over the second quarter. About half of the banks, on net, reported that they had experienced stronger demand for such loans.
Special questions on commercial real estate lending by loan type. The survey included special questions on changes in standards and demand over the past twelve months for the three major categories of CRE loans--construction and land development loans, loans secured by nonfarm nonresidential properties, and loans secured by multifamily residential properties. Banks reported that they had eased their standards, on balance, on all three types of CRE loans over the past twelve months, though fewer banks so reported for construction and land development loans than for the other two categories of CRE loans. Moderate net fractions indicated that they had experienced stronger demand for all three categories over the same period.
Lending to Households
(Table
1, questions 15-28)
Questions on residential real estate lending. Modest net fractions of domestic respondents to the July survey reported that they had eased standards on prime residential or nontraditional mortgage loans over the past three months. A large net fraction of banks reported having experienced stronger demand for prime residential mortgages, but demand for nontraditional mortgages reportedly weakened. Banks reported that their standards on home equity lines of credit were little changed, and a modest net fraction of banks indicated that they had seen increased demand for those products.
Questions on consumer lending. Responses from domestic banks indicated that they were somewhat more willing to make consumer installment loans than three months previously. However, while a moderate net fraction of banks reported having eased standards on auto loans, only small net fractions indicated that they had eased standards on credit card loans and other consumer loans. On balance, banks reported reducing spreads on auto loans, increasing the maximum maturity on auto loans, and easing credit limits on credit cards. Other terms across the three categories of consumer loans remained little changed, on net, over the past three months. A moderate net fraction of banks reported having experienced increased demand for auto loans; smaller net fractions indicated they had seen stronger demand for credit card loans and other consumer loans.
Special questions on the levels of lending standards relative to longer-term norms.
(Table
1, question 29; Table
2, question 15)
The July survey repeated a set of special questions from July 2011 and July 2012 that asked respondents to describe the current level of lending standards at their bank, rather than changes in standards over the survey period. Specifically, for each loan category surveyed, banks were asked to consider the range over which their bank's standards have varied between 2005 and the present and to report where the current level of standards for such loans resides relative to the midpoint of that range.
Regarding loans to businesses, moderate net fractions of domestic banks reported that lending standards on four different kinds of C&I loans (investment-grade syndicated loans, below-investment-grade syndicated loans, other loans to large and middle-market firms, and loans to small firms) were currently at levels that were easier than the midpoints of the ranges that those standards have occupied since 2005. Foreign banks generally reported that the levels of standards on loans to large firms were easier than the midpoints, while standards on loans to small firms were reported to be about at the midpoint. Modest to moderate net fractions of domestic banks reported that the current standards on all types of CRE loans (construction and land development loans; loans secured by nonfarm, nonresidential structures; and loans secured by multifamily structures) were tighter than the midpoints of the ranges that those standards have occupied since 2005. Compared with the results in the July 2012 survey, these results for all types of C&I and CRE loans indicate some easing of credit conditions from the levels reported a year ago.
With respect to loans to households, moderate to large net fractions of banks reported that lending standards for all six categories of residential mortgages included in the survey (prime conforming mortgages, mortgages guaranteed by the Federal Housing Administration or the U.S. Department of Veterans Affairs, prime jumbo mortgages, subprime mortgages, nontraditional mortgages, and HELOCs) remained at least somewhat tighter than the midpoints of the ranges that those standards have occupied since 2005. Modest net fractions of domestic banks reported that standards were tighter than the midpoint for prime credit card, subprime credit card, auto, and other consumer loans. Compared with the results in the July 2012 survey, lending standards for many types of household loans appear to be little changed.
This document was prepared by John C. Driscoll and Vladimir Yankov, with the assistance of Shaily Patel, Division of Monetary Affairs, Board of Governors of the Federal Reserve System.
1. Respondent banks received the survey on or after July 2, 2013, and responses were due by July 16, 2013. Return to text
2. For 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
3. The 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
4. Large banks are defined as those with total domestic assets of $20 billion or more as of March 31, 2013. Return to text