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The January 2018 Senior Loan Officer Opinion Survey on Bank Lending Practices

Table 1 | Table 2 | Chart data
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The January 2018 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 fourth quarter of 2017 1. Responses were received from 71 domestic banks and 23 U.S. branches and agencies of foreign banks. Unless otherwise indicated, this summary refers to the responses of domestic banks.

Regarding loans to businesses, respondents to the January survey indicated that, on balance, banks eased their standards and terms on commercial and industrial (C&I) loans to large and middle-market firms while demand for such loans was basically unchanged2. Meanwhile, banks' standards on most categories of commercial real estate (CRE) loans tightened, while demand for CRE loans reportedly weakened.

For loans to households, banks reported that, on balance, their lending standards on consumer loans, as well as for most categories of residential real estate loans, remained basically unchanged over the third quarter. Meanwhile, banks reported weaker demand for auto loans and residential mortgages.

Banks also responded to a set of special questions inquiring about their outlook for lending policies and loan performance over 2018. On balance, banks reported expecting to ease standards on residential mortgages and C&I loans to large and middle-market firms, while expecting to tighten standards on CRE loans and credit card loans. Demand for C&I loans is also expected to strengthen on net. Meanwhile, banks anticipate that loan performance will improve, on net, for C&I loans while deteriorating for consumer loans. The performance of most categories of loans backed by real estate is expected to remain basically unchanged on net.

Lending to Businesses

(Table 1, questions 1–12; Table 2, questions 1–8)

Questions on commercial and industrial lending. A moderate net percentage of banks reported that they eased standards for C&I loans to large and middle-market firms over the past three months, while lending standards remained basically unchanged, on net, for loans to small firms3. Further, terms on such loans followed a similar pattern, on balance, with most terms on loans to large and middle-market firms having been eased, while terms on loans to small firms remained basically unchanged.

Specifically, for C&I loans to large and middle-market firms, moderate net percentages of banks reportedly decreased loan rate spreads, increased the maximum size of credit lines, and eased loan covenants. Other surveyed terms on these loans were reported as having been eased by a modest net share of banks or were basically unchanged. Banks reported all terms on C&I loans to small firms were basically unchanged on net.

Among the domestic respondents that reportedly eased their credit policies on C&I loans over the past three months, more aggressive competition from other banks or nonbank lenders was by far the most emphasized reason for easing. Nearly every bank that reported having eased standards attributed this change, in part, to more aggressive competition, with a majority of respondents indicating that the reason was "very important." No other reason queried was cited as important by a majority of banks, nor was any other reason cited as "very important" by more than a couple of banks. However, significant shares of banks additionally reported that improvements in the favorability or certainty of the economic outlook, improvement in industry-specific problems, increased risk tolerance, and increased secondary market liquidity also contributed to their having eased standards on C&I loans.

Regarding the demand for C&I loans, a modest net share of domestic banks reported that demand for C&I loans from small firms strengthened, while demand for such loans from large and middle-market firms was basically unchanged on net. A majority of banks indicated that increases in customers' needs to finance inventory, accounts receivable, mergers and acquisitions, and investment in plants and equipment contributed to stronger demand, as did a shift in customers' borrowing toward other bank or nonbank sources. Meanwhile, the number of inquiries from potential business borrowers regarding the availability and terms of new credit lines or increases in existing lines reportedly remained basically unchanged over the past three months on net.

All foreign banks surveyed responded that their standards for C&I loans remained basically unchanged over the fourth quarter; however, they reportedly eased several loan terms. In particular, moderate net shares of foreign banks reported looser loan covenants, increased maximum sizes of credit lines, and decreased loan rate spreads and premiums charged on riskier loans. Meanwhile, demand for C&I loans and inquiries from businesses about credit lines reportedly remained basically unchanged on balance.

Questions on commercial real estate lending. Moderate net fractions of banks reported tightening their standards for loans secured by multifamily residential properties and loans for construction and land development purposes, while banks reportedly left standards for loans secured by nonfarm nonresidential properties basically unchanged on net.

Meanwhile, modest net fractions of banks reported weaker demand for multifamily and construction and land development loans, while demand for loans secured by nonfarm nonresidential properties was basically unchanged on net.

A modest net share of foreign banks reported tighter standards for CRE loans. In contrast to domestic respondents, a moderate net share of foreign banks indicated that demand for CRE loans strengthened in the fourth quarter.

Lending to Households

(Table 1, questions 13–26)

Questions on residential real estate lending. On balance, banks reported that standards for residential home purchase mortgage lending remained basically unchanged over the past three months, with the exception of mortgages eligible to be securitized by government sponsored enterprises (GSE-eligible), for which a moderate net share of banks reported easing their underwriting standards4. Similarly, banks reported that standards for revolving home equity lines of credit (HELOCs) remained basically unchanged on balance.

Meanwhile, moderate net shares of banks reported weaker demand for all categories of residential mortgages, and a modest net share of banks reported weaker demand for HELOCs.5

Questions on consumer lending. Banks reported that standards for all categories of consumer loans were basically unchanged, on balance, over the fourth quarter. However, banks did indicate that some consumer loan terms became tighter. For credit card loans, modest net shares of banks reportedly increased their minimum required credit scores and decreased the extent to which loans are granted to customers that do not meet credit scoring thresholds. For auto loans, modest net shares of banks reportedly widened loan rate spreads and increased minimum required credit scores and monthly repayment rates. Terms and conditions for consumer loans other than credit card and auto loans were mostly unchanged, although a modest net share of banks reported a decreased willingness to grant loans to customers who do not meet credit scoring thresholds.

Meanwhile, a modest net share of banks reported weaker demand for auto loans, while demand for credit card loans and other consumer loans remained basically unchanged in the fourth quarter on balance.

Special Questions on Banks' Outlook for Lending Practices and Conditions over 2018

(Table 1, questions 27–31; Table 2, questions 9–11)

A set of special questions asked banks about their expectations for lending practices and conditions over 2018, assuming that economic activity progresses in line with consensus forecasts. On balance, banks reported expecting to ease standards on residential mortgages and C&I loans to larger firms while tightening standards on CRE loans and credit card loans.

Regarding expectations for the C&I loan market, a moderate net fraction of banks reported that they expect to ease lending standards on loans to large and middle-market firms, while a significant net share of banks expects to narrow loan rate spreads for these firms. In contrast, lending standards and interest rate spreads for small firms are expected to remain basically unchanged on balance. Significant net shares of banks expect demand for C&I loans from small and large firms to strengthen over 2018.

On balance, banks expect to tighten standards across all categories of CRE loans over 2018. A significant net fraction of banks reported that they expect to tighten lending standards on loans secured by multifamily residential properties. Meanwhile, a moderate and modest net fraction of banks reported expecting to tighten lending standards on construction and land development loans and loans secured by nonfarm nonresidential properties, respectively.

The expected changes in lending standards for loans to households over the next year were somewhat mixed. On the one hand, moderate net shares of banks reported expecting to ease standards on GSE-eligible and nonconforming jumbo residential mortgage loans. On the other, a modest net share of banks reported expecting to tighten standards for approving credit card loans over 2018. Standards for approving auto loan applications are expected to remain basically unchanged on balance.

Foreign banks, on net, reported that they expect lending standards for C&I loans to remain basically unchanged over 2018 for both small and large and middle-market firms. In addition, a moderate net fraction of these banks anticipate narrowing loan rate spreads for large firms, while spreads on loans to small firms are expected to remain basically unchanged over this period. A moderate net share of foreign banks expect demand for C&I loans from small firms to strengthen; these banks expect demand from larger firms to remain basically unchanged on net. Regarding CRE loans, a significant net fraction of foreign banks expect to tighten lending standards on construction and land development loans over 2018, with moderate net fractions of these banks expecting to tighten lending standards on loans secured by nonfarm nonresidential properties and multifamily residential properties.

Special Questions on Banks' Outlook for Loan Performance over 2018

(Table 1, questions 32–35; Table 2, questions 12–13)

A second set of special questions asked about banks' expectations for asset quality for 2018, as measured by their outlook for loan charge-offs and delinquencies, assuming that economic activity progresses in line with consensus forecasts.

Regarding expectations for the performance of loans to businesses, modest net fractions of banks reported that they expect the quality of syndicated nonleveraged loans and nonsyndicated loans to large and middle-market firms to improve over 2018, while the performance of loans to small firms and syndicated leveraged loans are expected to remain basically unchanged on net. Meanwhile, banks, on balance, reported little change to their outlook for delinquencies and charge-off rates for loans secured by multifamily residential properties or nonfarm nonresidential properties, whereas a modest net fraction of banks reported expecting the performance of construction and land development loans to deteriorate somewhat over 2018. Foreign banks were less optimistic about the quality of C&I loans, with moderate net shares of banks expecting the performance of syndicated leveraged loans and C&I loans to small firms to deteriorate somewhat while expecting other loans to large and middle-market firms to remained unchanged on balance.

Regarding the expected performance of loans to households, banks reported expecting the quality of residential mortgages to remain around current levels, although a modest net share of banks expect the performance on HELOCs to deteriorate over 2018. Banks had a less optimistic outlook regarding the quality of consumer loans, with a significant net share of banks reporting that they expect the asset quality of credit card loans to deteriorate over 2018 and a moderate net share of banks expecting the quality of auto loans to do so.

This document was prepared by David Glancy, with the assistance of Jared Berry, Division of Monetary Affairs, Board of Governors of the Federal Reserve System.


1. Respondent banks received the survey on or after December 22, 2017, and responses were due by January 8, 2018. Return to text

2. For 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. 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

5. This analysis excludes the subprime mortgage category, as only three lenders in the respondent panel reportedly originate these loans. Return to text

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Last Update: February 05, 2018