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Senior Loan Officer Survey points to tighter standards for some types of lending, weaker demand for loans overall

The January 2019 Senior Loan Officer Opinion Survey on Bank Lending Practices pointed to somewhat tighter conditions since the October 2018 report. Conditions have by no means reached readings that would suggest a significant deterioration, but lending could prove more costly after the last Fed rate hike on December 19, 2019 along with banks turning more cautious about risk.

While “standards for C&I loans to both large and middle-market firms and to small firms remained basically unchanged over the past three months,” survey respondents reported taking steps to increase “premiums charged on riskier loans to large and middle-market firms” and to a lesser extent for small businesses. Where terms and standards were eased, the only “important” reason was increased competition. Demand for C&I loans was overall weaker across all sizes of firms. Reasons given included less need to finance merges and acquisitions, less need to invest in plants and equipment, and “a shift in customers’ borrowing toward other bank or nonbank sources.”

Commercial real estate (CRE) lending saw tighter standards for construction and development. At the same time, demand for such loans was generally softer as well.

Standards for most types of consumer lending were about unchanged except for credit cards for which standards were tighter. Standards for residential real estate (RRE) were also about unchanged, as they were for revolving home equity lines of credit (HELOCs). However, on balance demand for RRE loans and HELOCs were weaker. Demand for credit cards, auto loans, and other consumer loans was also weaker.

The special question regarding banks’ outlook for 2019 was summed up as, “On balance, banks reported expecting tighter standards, weaker demand, and worse loan performance, for most loan categories.” The question was asked against the backdrop of the plunge in equities late in 2018, a partial government shutdown that lasted over a month, and signs that the US economy is likely to return to more moderate growth in 2019.

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