Banks’ credit standards loosen a bit as loan demand rises
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Banks were more likely to loosen lending standards than to tighten them in the last few months, though the main beneficiaries were big corporate borrowers, a Federal Reserve report shows.
The Fed’s quarterly survey of senior bank loan officers, published Monday, found that 12.3% of 57 U.S. lenders eased credit “somewhat” for larger companies in the last three months, while just 1.8% tightened credit. The rest left their standards unchanged.
By contrast, 5.3% of the banks eased credit conditions somewhat for smaller firms in the period, while 3.7% tightened conditions for those borrowers.
The Fed defines a small company as one with annual sales of $50 million or less.
In a hopeful sign for the economic recovery, the survey found that business demand for money was increasing.
“About 30% of banks, on net, reported greater demand from large and middle-market firms, and about 5% reported strengthened demand from small firms,” the Fed said. “In addition, compared with the October survey, a larger fraction of banks reported an increase in inquiries from business borrowers for new or increased credit lines.”
The Fed also asked banks about their outlook on the quality of the loans they hold. The survey found that “expectations were significantly more upbeat than in past years. Moderate to large net fractions of banks reported that they expected improvements in delinquency and charge-off rates during 2011 in every major loan category.”
That also should mean their willingness to lend will increase.
The survey found that competition was a significant force pushing banks to make loans on better terms for borrowers in the last three months.
“Of banks that reported having eased standards or terms on commercial and industrial loans, large majorities pointed to increased competition from other banks and nonbank lenders, as well as to a more favorable or less uncertain economic outlook, as reasons for the changes,” the Fed said.
-- Tom Petruno