Senior Loan Officer Opinion Survey on Bank Lending Practices
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The April 2022 Senior Loan Officer Opinion Survey on Bank Lending Practices
The April 2022 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 correspond to the first quarter of 2022.1
Regarding loans to businesses, respondents to the survey reported, on balance, unchanged standards for commercial and industrial (C&I) loans to firms of all sizes, after having eased them over the previous four quarters, while demand strengthened over the first quarter.2 Meanwhile, banks reported unchanged standards and demand for most commercial real estate (CRE) loan categories except for those secured by multifamily residential properties, for which they eased standards and demand strengthened on net.
Banks also responded to a set of special questions about changes in lending policies and demand for CRE loans over the past year. Banks reportedly eased some lending terms across all CRE loan categories, including the maximum loan size and maturity, the spread of loan rates over their cost of funds, the length of interest-only periods, and the market areas served.
For loans to households, banks eased standards across most categories of residential real estate (RRE) loans and home equity lines of credit (HELOCs) over the first quarter, while also reporting weaker demand for all types of RRE loans but stronger demand for HELOCs on net. In addition, banks eased standards for card loans and auto loans, while demand reportedly strengthened for all consumer loan types over the first quarter.
Lending to Businesses
(Table 1, questions 1–12; table 2, questions 1–8)
Questions on commercial and industrial lending. Over the first quarter, banks reported that lending standards on C&I loans were basically unchanged to firms of all sizes, after having eased standards continuously over the previous four quarters. However, banks reportedly continued to ease some of the queried terms on C&I loans to firms of all sizes.3 Easing was most widely reported for the maximum size of credit lines, with a moderate net share of banks reporting having eased this term for loans to firms of all sizes. In addition, moderate and modest net shares of banks reported having reduced the use of interest rate floors to large and middle-market firms and to small firms, respectively.4 Modest net shares of banks also reduced the spreads of loan rates over the cost of funds to firms of all sizes, while a modest net share of banks reportedly reduced the cost of credit lines for loans to large and middle-market firms. Most other queried C&I loan terms remained basically unchanged on net.5 Meanwhile, significant net shares of foreign banks reported having tightened standards on C&I loans.
A major net share of banks that reported having eased standards or terms cited more aggressive competition from other banks or nonbank lenders as an important reason for doing so. Significant net shares of banks also cited improvement in industry-specific problems, a more favorable or less uncertain economic outlook, and improvement in their current or expected liquidity position as important reasons for easing lending standards and terms.
Regarding demand for C&I loans over the first quarter, a moderate net share of banks reported stronger demand for loans from firms of all sizes. Furthermore, a moderate net share of banks reported a higher number of inquiries from potential borrowers regarding the availability and terms of new credit lines or increases in existing lines. Conversely, significant net shares of foreign banks reported that C&I loan demand was weaker over the first quarter.
Among the most cited reasons for strengthening demand, major net shares of banks cited increased customer needs to finance inventory and accounts receivable, as well as higher customer investment in plant or equipment.
Questions on commercial real estate lending. Over the first quarter, a modest net share of banks reportedly eased standards for loans secured by multifamily properties, while standards were basically unchanged, on net, for construction and land development loans and nonfarm nonresidential loans. Furthermore, a moderate net share of banks reported stronger demand for loans secured by multifamily properties, while demand was basically unchanged for construction and land development loans and nonfarm nonresidential loans. Meanwhile, modest and moderate net shares of foreign banks reported tighter standards and stronger demand for CRE loans over the first quarter, respectively.
Special questions on changes in banks’ credit policies on commercial real estate loans over the past year. A set of special questions asked banks about changes in their credit policies for each major CRE loan category over the past year.6 These questions have been asked in the April survey for the past six years.
Banks reported having eased more than half of the terms surveyed on all types of CRE loans. For construction and land development loans, significant net shares of banks increased the maximum loan size and the length of interest-only payment periods, while moderate net shares of banks increased the maximum loan maturity, lowered the spread on loan rates, and expanded the market areas served. For nonfarm nonresidential loans, a significant net share of banks lowered the spread on loan rates; a moderate net share of banks increased the maximum loan size and the length of interest-only payment periods; and modest net shares of banks increased the maximum loan maturity and expanded the market areas served. For multifamily loans, significant net shares of banks increased the maximum loan size and lowered the spread on loan rates; moderate net shares of banks increased the maximum loan maturity, expanded the market areas served, and increased the length of interest-only payment periods; and modest net shares of banks lowered the minimum debt service coverage ratio. These responses contrast with the answers to the same questions in the April 2021 survey, in which domestic banks reported having generally tightened most terms on CRE loans other than the multifamily type. They also contrast with the responses of foreign banks in this year’s survey, of whom moderate and modest net shares reportedly tightened terms, such as the spread on loan rates and the market areas served on all CRE loan types over the first quarter, respectively.
Major net shares of banks that eased CRE credit policies reported more aggressive competition from other banks or nonbank financial institutions, and more favorable or less uncertain outlooks for CRE property prices, market rates, and vacancy rates as important reasons for easing. Meanwhile, major net shares of banks that reportedly experienced stronger demand pointed to a more favorable or less uncertain outlook for rental demand and an increase in customers’ acquisition or development of properties as important reasons for stronger demand.
Lending to Households
(Table 1, questions 13–26)
Questions on residential real estate lending. Over the first quarter, banks reported easier lending standards for most RRE loan types and HELOCs.7 In particular, moderate and modest net shares of banks eased standards for qualified mortgage (QM) jumbo and non-QM jumbo loans, respectively. Meanwhile, modest net shares of banks reported easier standards for government-sponsored enterprise (GSE)-eligible loans, QM non-jumbo loans, non-QM non-jumbo loans, as well as HELOCs. As exceptions, standards were basically unchanged, on net, for government mortgages and subprime mortgages, with few banks reporting originating subprime mortgages.
Meanwhile, banks generally reported weaker demand for all RRE loans over the first quarter but stronger demand for HELOCs. Specifically, significant net shares of banks reported weaker demand for all RRE loan categories other than subprime residential mortgages, for which moderate net shares reported weaker demand. Nonetheless, a modest net share of banks reported stronger demand for HELOCs.
Questions on consumer lending. Over the first quarter, moderate and modest net shares of banks eased standards for credit card and auto loans, respectively, while banks reported having left lending standards unchanged for other consumer loans. Consistent with an easing of standards for credit card loans, a moderate net share of banks also reported having eased credit limits and the extent to which loans are granted to some customers that do not meet credit scoring thresholds for these types of loans. Additionally, a modest net share of banks reported relaxing the minimum credit score requirements for credit card loans. Meanwhile, significant and modest net shares of banks reported having reduced spreads of interest rates and extended the maximum maturity for auto loans, respectively.8
Regarding demand for consumer loans, a significant net share of banks reported stronger demand for credit card loans over the first quarter, while moderate net shares of banks reported stronger demand for auto loans and other loans.
This document was prepared by Andrei Zlate, with the assistance of Brandon Nedwek and Andrew Wei, Division of Monetary Affairs, Board of Governors of the Federal Reserve System.
1. Responses were received from 68 domestic banks and 21 U.S. branches and agencies of foreign banks. Respondent banks received the survey on March 28, 2022, and responses were due by April 8, 2022. Unless otherwise indicated, this summary refers to the responses of domestic banks. Return to text
2. 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. Large banks are defined as those with total domestic assets of $50 billion or more as of December 31, 2021. Return to text
3. Lending standards characterize banks’ policies for approving applications for a certain loan category. Conditional on approving loan applications, lending terms describe banks’ conditions included in loan contracts, such as those listed for C&I loans under question 2 to both domestic and foreign banks and those listed for credit card, auto, and other consumer loans under questions 21–23 to domestic banks. Thus, standards reflect the extensive margin of lending, while terms reflect the intensive margin of lending. The eight lending terms that banks are asked to consider with respect to C&I loans are the maximum size of credit lines, maximum maturity of loans or credit lines, costs of credit lines, spreads of loan rates over the bank’s cost of funds, premiums charged on riskier loans, loan covenants, collateralization requirements, and use of interest rate floors. Return to text
4. For questions that ask about lending standards or terms, “net fraction” (or “net percent” or “net share”) 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
5. In one instance terms were reportedly tightened: A moderate net share of banks reported having increased the premiums charged on riskier loans to large and middle-market firms. Return to text
6. Table 1, questions 27–31; table 2, questions 9–13. Return to text
7. 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 C.F.R. pt. 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 Consumer Financial Protections Bureau (2019), “Ability to Repay and Qualified Mortgage Standards Under the Truth in Lending Act (Regulation Z),” webpage, https://www.consumerfinance.gov/regulations/ability-to-repay-and-qualified-mortgage-standards-under-the-truth-in-lending-act-regulation-z. Return to text
8. Banks were asked about changes in credit limits (credit card accounts and other consumer loans only), maximum maturity (auto loans only), loan rate spreads over costs of funds, the minimum percent of outstanding balances required to be repaid each month, the minimum required credit score, and the extent to which loans are granted to borrowers not meeting credit score criteria. Return to text