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August 1997

Senior Loan Officer Opinion Survey on
Bank Lending Practices

The August 1997 Senior Loan Officer Opinion Survey on Bank Lending Practices (covering, for the most part, changes over the preceding three months) posed questions about bank lending standards and terms, loan demand by businesses and households, and securities backed by commercial mortgages.
        Increased competition for business credit apparently led large percentages of surveyed banks to ease terms on commercial and industrial and commercial real estate loans over the past three months. Furthermore, a small, but significant, share of banks reported easing standards on commercial real estate loans. Demand for C&I and commercial real estate loans strengthened at many of the respondents.
        Banks again reported tightening standards on consumer loans, but the percentage that tightened was lower than in recent surveys. Moreover, several banks expressed increased willingness to make these loans. Demand for consumer loans reportedly declined.

Lending to Businesses   (Table 1, questions 1-9, 18, and 19; table 2, questions 1-9)

A small net percentage of the domestic respondents--about 5 percent--reported easing standards for C&I loans to large and middle market firms and to small businesses over the past three months (chart). About 40 percent, on net, narrowed spreads of C&I loan rates over their bank's cost of funds on loans to large and middle market borrowers, and about 25 percent, on net, narrowed spreads on loans to small businesses. Similar percentages indicated lower costs of credit lines, and smaller percentages eased other terms including the maximum size of credit lines, loan covenants, and collateralization requirements. The degree of easing found in the August survey is similar to that found in the January and May surveys. Those banks that eased said they did so because of increased competition from other banks, and, to a lesser extent, from nonbank lenders. Foreign respondents reported no change in standards for C&I loans, and only a few indicated a change in terms.
        Increased demand for C&I loans, on net, from large and middle-market borrowers and from small business borrowers was reported by 15 percent and 20 percent, respectively, of the domestic banks. Respondents attributed the increased demand to greater customer financing needs for mergers and acquisitions, plant and equipment investment, and inventories. Foreign respondents reported essentially no change in demand for C&I loans.
        The survey results suggest that banks are cautiously increasing their participation in the market for commercial real estate loans. More than 10 percent of the domestic respondents, on net, reported easing standards for these loans over the past three months. The three preceding surveys also found small net percentages easing standards on these loans, and the August results mark the largest, albeit still modest, net percentage easing since the question was added to the survey in 1990. In addition, two-fifths of the domestic respondents narrowed spreads on these loans over the past three months and smaller fractions increased maximum loan sizes, extended maximum loan maturities, and eased pre-leasing or pre-sale agreements. The survey found little change in required loan-to-value ratios, requirements for take-out financing, and debt-service coverage ratios. Foreign respondents reported essentially no change in standards and, other than a few that narrowed spreads, little change in terms. Increased competition was reportedly the principal reason for the eased standards and terms, although many banks also cited improvements in the condition of or the outlook for commercial real estate. About 15 percent of the domestic and 25 percent of the foreign respondents reported increased demand for commercial real estate loans.

Lending to Households   (Table 1, questions 10-17)

The August survey was the seventh in a row that found a tightening in standards for loans to households. However, the net percentages tightening were smaller in August, suggesting that more banks may now believe they have adjusted their lending stance appropriately to the deterioration in the performance of these loans that occurred over the past two years. In August, less than 25 percent of the respondents said they had tightened standards for credit card applications over the past three months and less than 10 percent, on net, had tightened standards for other consumer loans. These percentages, while significant, are about half those found in May. One-fourth of the respondents also lowered credit limits on credit card lines, although only small net fractions of banks tightened other terms on consumer loans. Despite these tighter standards and terms, about 10 percent of the banks, on net, said that their willingness to make consumer installment loans had increased over the past three months, the largest net percentage expressing increased willingness since the May 1995 survey (chart). About 10 percent of the respondents, on net, reported decreased demand for consumer loans.
        Banks reported essentially no change in their standards for approving applications for mortgage loans to purchase homes. Twenty percent of the respondents, on net, reported increased demand for these loans.

Commercial Mortgage-Backed Securities   (Table 1, questions 20-26; table 2, questions 10-16)

Special questions on the survey asked about banks' issuance and holdings of commercial mortgage-backed securities, which have grown rapidly in recent years. About one-fourth of the domestic respondents, concentrated among the larger banks, and one-fifth of the foreign respondents had securitized commercial mortgages. Almost all the respondents that had securitized commercial mortgages had done so, at least in part, through a conduit program. These programs are typically arrangements sponsored by an investment bank to package loans originated by correspondent lenders. The investment bank establishes lending guidelines under which the correspondents originate their loans, thus promoting uniformity in the loans backing the securities.
        About half of those banks that had securitized commercial mortgages retained at least some of the servicing responsibilities for them. Only a couple of the banks retained junior or senior classes of the securities backed by the commercial mortgages they had originated. However, about one-fourth of the respondents, especially the larger respondents, did hold some commercial mortgage-backed securities.

The report, with charts and tables, is available in
Acrobat (PDF) format. Obtaining the Acrobat Reader

Charts (16 KB PDF)
Measures of lending practices from current and previous surveys
Chart data (ASCII)

Table 1 (60 KB PDF)
Summary of responses from U.S. banks

Table 2 (33 KB PDF)
Summary of responses from branches and agencies of foreign banks

Full report (76 KB PDF)

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Last update: August 22, 1997, 12:00 PM