Senior Loan Officer
Opinion Survey on
Bank Lending Practices
The May 1997 Senior Loan Officer Opinion Survey on Bank Lending Practices posed
questions about bank lending standards and terms, loan demand by businesses and
households, and expectations about charge-off rates for consumer and C&I loans.
Fifty-nine domestic banks and 24 U.S. branches and agencies of foreign banks
participated in the survey. The responses suggest that over the past three months
domestic banks have become even more accommodative lenders to businesses but have
tightened credit to households. They also indicate that U.S. branches and
agencies of foreign banks have taken some steps to restrict credit supply.
Like the January survey results, the May results suggest that standards for
commercial and industrial loans did not change much over the preceding three
months but that terms eased further. Very few domestic respondents reported
having changed standards on C&I loans to large and small businesses, and just over
10 percent of domestic respondents eased standards for middle-market customers
(chart). By contrast, 10 percent of foreign respondents, on net, tightened
standards for C&I loans. Regarding terms for large and middle-market borrowers,
one-third of domestic respondents reported having narrowed the spreads of loan
rates over market rates, about one-fourth reduced costs of credit lines and eased
loan covenants, and about one-tenth increased credit lines or eased
collateralization requirements. Terms for small borrowers were eased by only a
few banks. Small net fractions of foreign respondents reported having tightened
various terms on C&I loans. This represents a shift for foreign banks, which
reported having eased terms on these loans for the past several surveys. Those
banks that eased standards or terms on C&I loans said they had done so because of
more-aggressive competition from other banks and from nonbank sources of credit.
The banks that tightened cited a lower tolerance for risk and a deterioration in
their current or expected capital position.
Extending a trend that began in early 1996, significant fractions of banks
reported having tightened standards on consumer loans. Nearly one-half the banks
said they had tightened standards for new credit card accounts over the preceding
three months, and one-fifth reported having tightened standards on other consumer
loans. Nevertheless, banks' willingness to make consumer installment loans was
unchanged from three months ago (chart). The net fraction of banks more willing
to make these loans has hovered near zero for the past six surveys. Forty percent
of the respondents lowered credit limits on credit card lines, and about 15
percent raised spreads of loan rates over market rates. Terms on other consumer
loans were about unchanged. On net, 15 percent of the respondents reported a
decline in demand for consumer loans.
Additional questions on the survey asked loan officers how they expected charge- off rates for consumer and C&I loans to change over the remainder of 1997. About one-third of respondents, on net, expected charge-off rates for consumer loans to go up, an eventuality most attributed to a greater willingness on the part of households to declare bankruptcy; somewhat fewer blamed worsening household financial conditions and aggressive solicitations by their bank for these loans. Those banks that foresaw a lower charge-off rate on consumer loans mentioned tighter standards for these loans. One-fourth of the banks, on net, expected charge-off rates for C&I loans to go up. Banks pointed to eased standards for these loans, a deterioration in business financial conditions, and a deterioration in the economy generally as the reasons for their outlook. Several banks also noted that recent declines in the gross charge-off rate on C&I loans would translate into fewer future recoveries, raising the net charge-off rate.
Charts (16 KB PDF)
Measures of lending practices from current and previous surveys
Chart data (ASCII)
Table 1 (43 KB PDF)
Table 2 (16 KB PDF)
Full report (84 KB PDF)
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Last update: May 23, 1997 3:00 PM