January 2017

The January 2017 Senior Loan Officer Opinion Survey on Bank Lending Practices

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Table 1 | Table 2 | Chart data
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The January 2017 Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) addressed changes in the standards and terms on, and demand for, bank loans to businesses and households over the past three months.1 This summary discusses the responses from 70 domestic banks and 23 U.S. branches and agencies of foreign banks.2

Regarding loans to businesses, the January survey results indicated that over the fourth quarter of 2016, on balance, banks left their standards on commercial and industrial (C&I) loans basically unchanged while tightening standards on commercial real estate (CRE) loans.3 Furthermore, banks reported that demand for C&I loans from large and middle-market firms, alongside small firms, was little changed, on balance, while a moderate net fraction of banks reported that inquiries for C&I lines of credit had increased.4 Regarding the demand for CRE loans, a modest net fraction of banks reported weaker demand for construction and land development loans and loans secured by multifamily residential properties, while demand for loans secured by nonfarm nonresidential properties reportedly remained basically unchanged on net.

Regarding loans to households, banks reported that standards on all categories of residential real estate (RRE) mortgage loans were little changed on balance. Banks also reported that demand for most types of home-purchase loans weakened over the fourth quarter on net. In addition, banks indicated mixed changes in standards and demand for consumer loans over the fourth quarter on balance.

The survey included two sets of special questions addressing banks' outlook for lending policies and loan performance over 2017, the latter as measured by their outlook for loan charge-offs and delinquencies. On balance, banks reported that they expect to ease standards on C&I loans and for the asset quality of such loans to improve somewhat this year. In contrast, banks expect to tighten standards on CRE loans, while they expect the asset quality of most major CRE loan categories to remain unchanged on net. Regarding loans to households, on balance, banks reported that they expect to ease standards and to see asset quality improve somewhat for most RRE home-purchase loan categories. Furthermore, banks responded that they expect to tighten standards on auto loans and to see asset quality of both auto and credit card loans deteriorate somewhat over 2017.

Lending to Businesses
(Table 1, questions 112; Table 2, questions 18)

Questions on commercial and industrial lending. Domestic banks reportedly left C&I lending standards for large and middle-market firms and for small firms unchanged, on balance, in the fourth quarter of 2016. Changes to terms on C&I loans for large and middle-market firms were mixed. Specifically, a moderate net percentage of banks reportedly increased the maximum size of credit lines, while a modest net percentage of banks reportedly eased loan covenants, reduced the cost of credit lines, and narrowed spreads of loan rates over their cost of funds. The remaining terms surveyed remained basically unchanged on net. Banks also reported that changes in the terms of loans to small firms were mixed. Specifically, a modest net percentage of banks reported increasing the maximum size of credit lines and narrowing spreads of loan rates over their cost of funds, while the remaining terms surveyed remained basically unchanged on net.

Most domestic banks that reportedly tightened either standards or terms on C&I loans over the past three months cited as an important reason a less favorable or more uncertain economic outlook. Significant fractions of such respondents also cited deterioration in their current or expected capital positions; worsening of industry-specific problems; reduced tolerance for risk; decreased liquidity in the secondary market for these loans; deterioration in their current or expected liquidity positions; and increased concerns about the effects of legislative changes, supervisory actions, or changes in accounting standards.

Most domestic banks that reported having eased either their standards or terms on C&I loans over the past three months cited as an important reason more aggressive competition from other banks or nonbank lenders. Significant fractions of such banks also cited as important reasons increased tolerance for risk and a more favorable or less uncertain economic outlook.

Regarding the demand for C&I loans, domestic banks reported that demand from large and middle-market firms and from small firms was little changed, on balance, during the fourth quarter. Meanwhile, a moderate net fraction of banks reported that inquiries for lines of credit increased.

Most domestic banks that reported stronger C&I loan demand cited as important reasons increases in customers' investment in plant or equipment and increases in customers' merger or acquisition financing needs. Meanwhile, most banks that reported weaker C&I loan demand noted the following as important reasons: decreases in customers' investment in plant or equipment, decreases in customers' accounts receivable financing needs, increases in customers' internally generated funds, and decreases in customers' merger and acquisition financing needs.

Meanwhile, foreign banks reported that C&I lending standards and terms surveyed remained about unchanged, on balance, in the fourth quarter of 2016. A moderate net fraction of foreign banks reported experiencing weaker demand for C&I loans, while the number of inquiries from potential business borrowers regarding lines of credit reportedly remained basically unchanged.

Questions on commercial real estate lending.On net, domestic survey respondents generally indicated that their lending standards for CRE loans of all types tightened during the fourth quarter.5 In particular, a moderate net fraction of banks reported tightening standards for loans secured by nonfarm nonresidential properties, whereas significant net fractions of banks reported tightening standards for construction and land development loans and loans secured by multifamily residential properties.

Regarding the demand for CRE loans, modest net fractions of banks reported weaker demand for construction and land development loans and loans secured by multifamily residential properties, while demand for loans secured by nonfarm nonresidential properties remained basically unchanged on net.

Meanwhile, in the fourth quarter, a moderate net fraction of foreign banks tightened their credit standards for approving applications for CRE loans. Furthermore, foreign banks, on balance, reported that demand for CRE loans remained basically unchanged.

Lending to Households
(Table 1, questions 1326)

Questions on residential real estate lending. During the fourth quarter, banks, on net, reported leaving lending standards basically unchanged on all categories of RRE home-purchase loans. 6 Meanwhile, banks reported experiencing weaker demand for most categories of RRE mortgage loans. In particular, a significant net fraction of banks reported weaker demand for subprime residential mortgages. Moderate net fractions of banks reported weaker demand for non-QM non-jumbo residential mortgages, whereas modest net fractions of banks reported weaker demand for government; QM non-jumbo, non-GSE-eligible; QM jumbo; and non-QM jumbo residential mortgages. Furthermore, banks, on balance, reported little change to credit standards and demand for revolving home equity lines of credit (HELOCs) over the fourth quarter.

Questions on consumer lending. A moderate net fraction of banks reported tightening lending standards on auto loans, whereas a modest net fraction of banks reported tightening lending standards on credit cards during the fourth quarter. Meanwhile, banks, on net, reported that their lending standards on other consumer loans and their willingness to make consumer installment loans remained basically unchanged.

Banks reported that most terms on consumer loans remained basically unchanged, on net, over the fourth quarter. However, modest net fractions of banks reported widening the spread of loan rates over their cost of funds for credit card and other consumer loans, while a moderate net fraction reported widening that spread for auto loans. Furthermore, modest net fractions of banks reported requiring higher down payments for auto loans and decreasing the extent to which credit card and auto loans are granted to some customers that do not meet credit scoring thresholds for such loans.

Banks, on balance, reported weaker demand for most consumer loan categories during the fourth quarter. Specifically, a moderate net fraction of banks reported weaker demand for auto loans, whereas a modest net fraction of banks reported weaker demand for credit card loans. Banks reported that demand for other consumer loans remained basically unchanged on net.

Special Questions on Banks' Outlook for Lending Practices and Conditions over 2017
(Table 1, questions 2731; Table 2, questions 911)

A set of special questions asked banks about their expectations for lending practices and conditions over 2017, assuming that economic activity progresses in line with consensus forecasts. On balance, banks reported they expect to ease lending standards on C&I and most RRE home-purchase loan categories, while they reportedly expect to tighten lending standards on CRE and auto loans.

A modest net fraction of banks reported they expect to ease lending standards on C&I loans to large and middle-market firms, whereas a moderate net fraction of banks reported expecting to ease lending standards on C&I loans to small firms. Furthermore, a moderate net fraction of banks reported that they expect the average spread of loan rates over their cost of funds to increase for C&I loans to small firms, while banks, on net, reportedly expect that spread to remain basically unchanged for C&I loans to large and middle-market firms.

Significant net fractions of banks reported they expect to tighten lending standards on construction and land development loans and loans secured by multifamily residential properties over 2017. Meanwhile, a moderate net fraction of banks reported they expect to tighten lending standards on loans secured by nonfarm nonresidential properties over the coming year.

Modest net fractions of banks reported they expect to ease standards on GSE-eligible and nonconforming jumbo residential mortgage loans, while banks, on net, reported that they expect their lending standards on subprime residential loans to change little over 2017. Furthermore, a modest net fraction of banks reported they expect lending standards on auto loans to tighten over 2017, whereas banks, on net, reported expecting lending standards on credit card loans to remain basically unchanged over the coming year.

Foreign banks, on net, reported that they expect lending standards on C&I loans to large and middle-market firms to remain basically unchanged over 2017, while a modest net fraction of foreign banks reported expecting to tighten their lending standards on C&I loans to small firms over this period. Furthermore, a moderate net fraction of foreign banks reported that they expect the average spread of loan rates over their cost of funds to increase for C&I loans to small firms, whereas a modest net fraction of foreign banks reported expecting that spread to increase for C&I loans to large and middle-market firms. Foreign banks, on balance, reported expecting to tighten their lending standards on CRE loans over 2017. Specifically, a significant net fraction of foreign banks reported they expect to tighten lending standards on construction and land development loans, while a moderate net faction of foreign banks reported they expect to tighten lending standards on loans secured by nonfarm nonresidential properties and multifamily residential properties.

Special Questions on Banks' Outlook for Loan Performance over 2017
(Table 1, questions 3235; Table 2, questions 1213)

A second set of special questions asked about banks' expectations for asset quality in 2017 as measured by their outlook for loan charge-offs and delinquencies, assuming that economic activity progresses in line with consensus forecasts. These questions have been repeated annually, with some changes in loan categories, since 2006.

Regarding asset quality of loans to businesses, moderate net fractions of banks reported that they expect asset quality of all C&I loan categories to large and middle-market firms to improve somewhat in 2017, while a modest net fraction of banks reported expecting asset quality of C&I loans to small firms to similarly improve over this period. Meanwhile, banks, on balance, reported little change to their outlook for delinquencies and charge-off rates for construction and land development loans and for loans secured by nonfarm nonresidential properties, whereas a modest net fraction of banks reported expecting the asset quality of loans secured by multifamily residential properties to deteriorate somewhat over 2017. At the same time, on balance, foreign banks reported they expect little change delinquencies and charge-offs across all categories of C&I and CRE loans, with the exception of a modest net fraction of foreign banks that reportedly expect asset quality of construction and land development loans to deteriorate somewhat over 2017.

Regarding asset quality of loans to households, moderate net fractions of banks reported that they expect asset quality of nonconforming jumbo and subprime residential mortgage loans to improve somewhat over 2017. Meanwhile, banks, on net, reported little change in their outlook for delinquencies and charge-offs for GSE-eligible residential mortgage loans and HELOCs. In contrast, a significant net fraction of banks reported they expect asset quality of credit card and auto loans to deteriorate somewhat over 2017.

This summary was prepared by Maya Shaton, with the assistance of Edward Kim and Kamran Gupta, Division of Monetary Affairs, Board of Governors of the Federal Reserve System.


1. Respondent banks received the survey on or after December 27, 2016, and responses were due by January 9, 2017. Return to text

2. Unless otherwise indicated, this document refers to reports from domestic respondents. Return to text

3. For questions that ask about lending standards or terms, the term "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 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 between 0 and 5 percent; the modifier "modest" refers to net percentages between 5 and 10 percent; the modifier "moderate" refers to net percentages between 10 and 20 percent; the modifier "significant" refers to net percentages between 20 and 50 percent; and the modifier "major" refers to net percentages over 50 percent. Return to text

4. The survey asked 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, which are those with annual sales of less than $50 million. Return to text

5. The three categories of CRE loans that banks are asked to consider are construction and land development loans, loans secured by nonfarm nonresidential properties, and loans secured by multifamily residential properties. 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 qualified mortgage (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