The July 2012 Senior Loan Officer Opinion Survey on Bank Lending Practices addressed changes in the supply of, and demand for, bank loans to businesses and households over the past three months.  This summary is based on responses from 64 domestic banks and 23 U.S. branches and agencies of foreign banks.

In the July survey, modest fractions of domestic banks, on balance, continued to report having eased their lending standards across most loan types over the past three months.

Relatively large fractions reported stronger demand for many types of loans over that period.  In contrast, lending standards at U.S. branches and agencies of foreign banks continued to tighten for commercial and industrial (C&I) loans and were unchanged for commercial real estate (CRE) loans; demand for both types of loans reportedly weakened, on net, at those institutions.

Business Lending

A modest fraction of domestic banks continued to report having eased standards on C&I loans to large and middle-market firms; standards on loans to small firms were little changed, on balance, for the fourth consecutive survey.  In contrast, a small number of U.S. branches and agencies of foreign banks reported having tightened their standards on C&I loans for the fourth consecutive quarter.

Domestic banks continued to ease many terms on C&I loans, on balance, regardless of firm size.  In particular, relatively large fractions of respondents continued to indicate that they had narrowed the spreads on C&I loan rates over their cost of funds and had reduced their use of interest rate floors.  In contrast, small fractions of foreign banks reported increasing the cost and reducing the maximum size of credit lines as well as raising premiums charged on riskier loans, while other C&I lending terms at those institutions changed little over the past three months.

Almost all domestic banks that reported having eased standards or terms on C&I loans continued to cite more-aggressive competition from other banks and nonbank lenders as a reason.  Only about one-fourth of the banks that had eased lending policies had done so because of a more favorable or less uncertain economic outlook.  Meanwhile, large majorities of the few banks, both domestic and foreign, that reported having tightened C&I credit standards or terms cited a less favorable or more uncertain economic outlook as the reason.

A significantly smaller net fraction of banks than in the previous survey reported stronger demand for C&I loans over the past three months.  Only a modest fraction of domestic banks indicated that the demand for C&I loans by large and middle-market firms had been stronger, on balance, while demand for loans by small firms was unchanged on net.  Domestic banks, on balance, also continued to report a rise in the number of inquiries from potential business borrowers regarding new or increased credit lines.  In contrast, demand for C&I loans at foreign banks reportedly had weakened somewhat further for the second consecutive survey.

A large majority of the domestic banks that reported stronger demand for C&I loans cited increases in customers’ funding needs related to inventories, accounts receivable, investment in plant or equipment, and mergers and acquisitions as important factors underlying the increase.  At the same time, about one-fifth of domestic and foreign banks indicated weaker demand for C&I loans in the July survey, and most of those institutions reported that a decrease in investment in plant or equipment was an important factor.

Read the full July 2012 Senior Loan Officer Opinion Survey.