Senior Loan Officer Opinion Survey on Bank Lending Practices
Current Survey PDF RSS DDP
Table 1 | Table 2 | Chart data
Table 1 (PDF) | Table 2 (PDF) | Charts (PDF)
The April 2020 Senior Loan Officer Opinion Survey on Bank Lending Practices
The April 2020 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, which generally corresponds to the first quarter of 2020.1
Regarding loans to businesses, respondents to the April survey indicated that, on balance, they tightened their standards and terms significantly on commercial and industrial (C&I) loans to firms of all sizes.2 Banks reported stronger demand for C&I loans from large and middle-market firms, while demand for C&I loans from small firms was about unchanged.3 Meanwhile, banks tightened standards and reported weaker demand across all three major commercial real estate (CRE) loan categories—construction and land development loans, nonfarm nonresidential loans, and multifamily loans—over the first quarter of 2020.
For loans to households, banks tightened standards across all three consumer loan categories—credit card loans, auto loans, and other consumer loans—over the first quarter of 2020, on net, while moderate fractions of banks tightened their lending standards on most categories of residential real estate (RRE) loans. Banks reported stronger demand for all categories of closed-end mortgage loans and weaker demand for all categories of consumer loans.
The survey also included two sets of special questions: one set about C&I loan demand across firms’ industries over the past six months and one set about changes in CRE lending policies over the past year. Banks reported that C&I loan demand from borrowers from most industries changed little over the past six months, and most banks that reported stronger demand cited an increase in customers’ precautionary demand for cash and liquidity and a decrease in customers’ internally generated funds as reasons for stronger demand. In their answers to the special questions about CRE lending policies, banks reported having tightened loan-to-value ratios, debt service coverage, and the spreads of loan rates over their costs of funds across all three major CRE loan categories over the past year.
Many banks also provided written comments about the coronavirus (COVID-19) pandemic in addition to answering the standardized survey questions. In these comments, banks reported that the changes in standards and demand across loan categories reported for the first quarter occurred late in March as the economic outlook shifted when news emerged about the rapid global spread of COVID-19.
Lending to Businesses
(Table 1, questions 1–12 and 27–33; Table 2, questions 1–15)
Questions on commercial and industrial lending. Over the first quarter, significant net shares of banks reported having tightened standards for C&I loans to both large and middle-market firms and to small firms.4 At the same time, major net shares of banks increased the use of interest rate floors, and significant net shares of banks tightened all other lending terms across firms of all sizes.5 Meanwhile, a major net fraction of foreign banks tightened standards for C&I loans, and major net shares of foreign banks reported having tightened the premiums charged over riskier loans, the costs of credit lines, and the spreads of loan rates over the costs of funds.
Major net shares of banks that reported tightening lending standards or terms cited a less favorable or more uncertain economic outlook, worsening of industry-specific problems, and reduced tolerance for risk as important reasons for doing so. Significant net shares of banks also mentioned decreased liquidity in the secondary market for C&I loans; increased concerns about the effects of legislative changes, supervisory actions, or changes in accounting standards; deterioration in the bank’s current or expected capital and liquidity positions; and less aggressive competition from other banks or nonbank lenders as important reasons for tightening standards or terms.
Furthermore, in their written comments, banks that tightened standards or terms for C&I loans over the first quarter also mentioned concerns regarding the COVID-19 outbreak as having influenced their decisions to tighten lending standards. In these comments, banks noted that they were focused on existing clients rather than granting loans to new clients. In particular, banks mentioned their clients’ liquidity needs and actions to mitigate the effect of the crisis on their clients who are experiencing strains.
Regarding demand for C&I loans over the first quarter, a modest net share of banks reported stronger demand for C&I loans to large and middle-market firms, while demand for C&I loans from small firms was about unchanged. In addition, a moderate net share of banks reported that the number of inquiries from potential borrowers increased over the first quarter. Meanwhile, major net fractions of foreign banks reported that demand for C&I loans strengthened and that the number of inquiries from potential borrowers increased.
Major net shares of banks that reported stronger demand cited an increase in customers’ precautionary demand for cash and liquidity, a decrease in customers’ internally generated funds, and an increase in customers’ accounts receivable financing needs as important reasons for stronger demand. Meanwhile, major net shares of banks that reported weaker demand mentioned a decrease in customers’ investments in plant or equipment, a decrease in customers’ merger or acquisition financing needs, and a decrease in customers’ accounts receivable financing needs as important reasons for weaker demand.
In their written comments, banks that reported stronger C&I loan demand noted client liquidity needs and clients’ efforts to mitigate the effect of the crisis on their businesses as contributing to stronger demand. Furthermore, banks pointed to clients’ increased interest in new credit facilities, in particular the Small Business Administration’s Paycheck Protection Program. Some banks that reported having experienced stronger demand noted that they expect to tighten lending standards on C&I loans in the future.
Special questions on commercial and industrial loan demand over the past six months. Banks also responded to a set of special questions investigating C&I loan demand over the past six months. A moderate net fraction of banks reported that demand from borrowers in the agriculture, forestry, fishing, and hunting industry weakened during this period, while banks reported that demand from borrowers in other industries changed little on net. Major net shares of banks that reported stronger demand in at least one industry cited an increase in customers’ precautionary demand for cash and liquidity, a decrease in customers’ internally generated funds, an increase in customers’ accounts receivable financing needs, and an increase in customers’ inventory financing needs as important reasons for stronger demand. Meanwhile, major net shares of banks that reported weaker demand in at least one industry mentioned decreases in customers’ investments in plant or equipment, inventory financing needs, merger or acquisition financing needs, and accounts receivable financing needs as important reasons for the weaker demand.
In contrast to responses from domestic banks, foreign banks reported that demand strengthened across all industries over the past six months.A major net share of foreign banks reported that demand from manufacturing firms strengthened, and significant net shares of foreign banks reported having experienced stronger demand from borrowers in most of the other industries. Almost all foreign banks that reported stronger demand cited an increase in customers’ precautionary demand for cash and liquidity as an important reason for stronger demand.
Questions on commercial real estate lending. Over the first quarter, major net shares of banks tightened standards on construction and land development loans and nonfarm nonresidential loans in the first quarter, and a significant net fraction of banks tightened standards for multifamily residential property loans. Meanwhile, a major net fraction of foreign banks reported having tightened their standards on CRE loans. Significant net shares of banks reported weaker demand for all three major CRE loan categories, while a moderate net fraction of foreign banks reported that demand for CRE loans weakened. In their written comments, several banks mentioned uncertainty in the CRE market due to the effect of the COVID-19 crisis as a reason for tighter standards and weaker loan demand.
Special questions on changes in banks’ credit policies on commercial real estate loans over the past year. A set of special questions asked banks to consider how their credit policies and loan demand for each major CRE loan category had changed over the past year and why.
Banks reported having tightened important lending terms across all three major CRE loan categories. In particular, a significant net fraction of banks widened the spreads of interest rates over the bank’s cost of funds for construction and land development loans, and moderate net shares of banks widened the spreads for multifamily loans and nonfarm nonresidential loans. In addition, moderate net shares of banks tightened loan-to-value ratios and increased debt service coverage. On net, banks reported having eased only a couple of terms for nonfarm nonresidential loans; specifically, modest net shares of banks increased the maximum loan size and expanded the market areas served. These responses contrast with the answers to the same questions in the April 2019 survey, in which banks reported having generally eased lending policies for all three main CRE loan categories.
Major net fractions of banks that tightened CRE credit policies over the past year cited reduced tolerance for risk and a less favorable or more uncertain outlook for CRE property prices, capitalization rates for CRE properties, vacancy rates, or fundamentals on CRE properties as important reasons for tightening. Meanwhile, a major net fraction of banks that eased CRE credit policies continued to report more aggressive competition from other banks or nonbank financial institutions as an important reason for easing.
Major shares of banks that reported having experienced weaker demand cited decreased customer acquisition or development of properties and a less favorable or more uncertain customer outlook for rental demand as important reasons for weaker demand. Meanwhile, major fractions of banks that reportedly experienced stronger demand pointed to decreased interest rates, an increase in customers’ acquisition or development of properties, a more favorable or less uncertain outlook for rental demand, and customers shifting from other banks or nonbank sources because these other sources became less attractive as important reasons for stronger demand.
Lending to Households
(Table 1, questions 13–26)
Questions on residential real estate lending. Over the first quarter, moderate net shares of banks tightened standards for non-government-sponsored enterprise (GSE)-eligible mortgage loans and for revolving home equity lines of credit (HELOCs). A modest net fraction of banks eased standards for government residential mortgages, and standards for GSE-eligible residential mortgages were about unchanged.6
Regarding demand for RRE loans over the first quarter, significant net shares of banks reported having experienced stronger demand for most categories of closed-end RRE loans, including GSE-eligible and qualified mortgage (QM) jumbo mortgages, which make up the majority of bank mortgage originations, while demand for HELOCs was about unchanged.
Questions on consumer lending. Over the first quarter, a moderate net share of banks tightened lending standards on auto loans, while significant net shares of banks tightened standards on credit card loans and other consumer loans. Significant net fractions of banks also tightened important terms on credit card loans, including credit limits, minimum credit scores required, and the extent to which loans are granted to customers who do not meet credit scoring thresholds.
Regarding demand for consumer loans over the first quarter, significant net fractions of banks experienced weaker demand for credit card and auto loans, and a moderate net fraction of banks reported weaker demand for other consumer loans. In their written comments, several banks indicated that the weakening in loan demand for auto loans is largely driven by lower demand following the COVID-19 outbreak.
This document was prepared by Marcelo Rezende, with the assistance of Elijah Broadbent and Max Gross, Division of Monetary Affairs, Board of Governors of the Federal Reserve System.
1Responses were received from 67 domestic banks and 22 U.S. branches and agencies of foreign banks. Respondent banks received the survey on March 23, 2020, and responses were due by April 3, 2020. Unless otherwise indicated, this summary refers to the responses of domestic banks. Return to text
2For questions that ask about lending standards or terms, “net fraction” (or “net percentage”) refers to the fraction of banks that reported having tightened (“tightened considerably” or “tightened somewhat”) minus the fraction of banks that reported having eased (“eased considerably” or “eased somewhat”). For questions that ask about loan demand, this term refers to 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”). For this summary, when standards, terms, or demand are said to have “remained basically unchanged,” the net percentage of respondent banks that reported either tightening or easing of standards or terms, or stronger or weaker demand, is greater than or equal to 0 and less than or equal to 5 percent; “modest” refers to net percentages greater than 5 and less than or equal to 10 percent; “moderate” refers to net percentages greater than 10 and less than or equal to 20 percent; “significant” refers to net percentages greater than 20 and less than 50 percent; and “major” refers to net percentages greater than or equal to 50 percent. Return to text
3 Large and middle-market firms are defined as firms with annual sales of $50 million or more, and small firms are those with annual sales of less than $50 million. Return to text
4 Lending standards characterize banks’ policies for approving applications for a certain loan category. Conditional on approving loan applications, lending terms describe banks’ conditions included in loan contracts, such as those listed for C&I loans under question 2 to both domestic and foreign banks and those listed for credit card, auto, and other consumer loans under questions 21–23 to domestic banks. Thus, standards reflect the extensive margin of lending, while terms reflect the intensive margin of lending. Return to text
5 The eight lending terms that banks are asked to consider are the maximum size of credit lines, maximum maturity of loans or credit lines, costs of credit lines, spreads of loan rates over the bank’s cost of funds, premiums charged on riskier loans, loan covenants, collateralization requirements, and use of interest rate floors. Return to text
6 The seven categories of residential home-purchase loans that banks are asked to consider are GSE-eligible, government, QM non-jumbo non-GSE-eligible, QM jumbo, non-QM jumbo, non-QM non-jumbo, and subprime. See the survey results tables that follow this summary for a description of each of these loan categories. The definition of a QM was introduced in the 2013 Mortgage Rules under the Truth in Lending Act (12 CFR Part 1026.32, Regulation Z). The standard for a QM excludes mortgages with loan characteristics such as negative amortization, balloon and interest-only payment schedules, terms exceeding 30 years, alt-A or no documentation, and total points and fees that exceed 3 percent of the loan amount. In addition, a QM requires that the monthly debt-to-income ratio of borrowers not exceed 43 percent. For more on the ability to repay and QM standards under Regulation Z, see the Consumer Financial Protection Bureau’s website at www.consumerfinance.gov/regulations/ability-to-repay-and-qualified-mortgage-standards-under-the-truth-in-lending-act-regulation-z. Return to text