Increased competition for business customers has led U.S. banks to make it easier for firms to borrow money, according to the Federal Reserve's quarterly senior loan officers survey released Monday.
The Fed's April survey also found increased business demand for credit.
Household lending results were "more mixed," the Fed said. While "a few domestic banks" eased standards on prime residential mortgages and stronger demand, there was relatively little easing for other kinds of consumer loans.
The survey of 68 domestic banks and 21 foreign bank affiliates found that competition from foreign banks has lessened and that standards for loans to European banks was "basically unchanged."
The anecdotal findings seem consistent with the Fed's most recent bank credit statistics, which show some recovery of lending activity from the negative levels reached in the aftermath of the financial crisis, with most of the lending concentrated in the commercial and industrial (C&I) loan category.
In the first quarter total loans and leases grew by 3.5%, up from 1.5% in the fourth quarter. For all of 2012, total loans and leases grew 2.7%, up from 1.8% in 2011. Lending had fallen 5.8% in 2010 and 10.2% in 2009.
C&I loans grew 11.0% in the first quarter, up from 8.3% in the fourth quarter. But real estate loans fell by 0.2% in the first quarter after falling 1.7% in the fourth quarter. Consumer loans rose 1.6%, down from 1.7%.
The Fed has been trying to stimulate the economy through large-scale asset purchases, but most of the new money created as a result resides in excess reserve balances at the Fed and has not translated into expanded lending.
However, the survey does suggest that banks are becoming more eager to lend, at least to business borrowers. Notable too was that banks were said to have eased loan terms and standards "for all firm sizes." Often in the past, the easing tended to favor larger companies.
"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," the Fed said in summarizing the survey results.
The Fed said "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," it said.
The Fed reported that "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," the report added.
The survey also found that "a moderate net fraction" of banks eased their commercial real estate 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."
There was "considerable variation" among banks in how they eased business lending terms. While "a very large fraction of respondents indicated that they had decreased spreads on C&I loan rates over their bank's cost of funds," the Fed said "moderate to large net fractions of banks ... reduced the cost of credit lines and decreased the use of interest rate floors for firms of all sizes."
About half of large domestic banks reported having eased loan covenants for large and middle-market firms, up from 30% in the January survey.
Explaining the easing, nearly all banks cited "more aggressive competition" from other banks and nonbank lenders. Less than half cited a more favorable economic outlook.
Echoing the bank credit data, the survey found that household lending activity was considerably more subdued.
"On balance, a few domestic banks reported having eased standards on prime residential mortgages over the past three months," the Fed said. "For the fifth consecutive survey, respondents reported that demand for prime residential mortgage loans had strengthened on net."
Outside of real estate lending, the survey found that "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."
The Fed said that "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," it said.
It appears that Europe's debt woes continued to give domestic banks an advantage over their foreign competition.
In response to special questions, "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."
The Fed also found that banks 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." But "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."
The survey also found that "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."
Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See
