Loan terms ease some more in second quarter, July Loan Survey says

By Sara Rosenberg

New York, Aug. 6 - Banks are continuing to ease terms on commercial and industrial loans to firms of all sizes, and a large number of banks reported seeing stronger demand for loans from large and middle-market firms over the past three months, according to the July Senior Loan Officer Opinion Survey on Bank Lending Practices.

Some of the revised terms included narrowing spreads and a reduction in interest rate floors.

Regarding lending standards, a modest fraction of banks eased standards to large and middle-market firms, while lending standards to small firms saw little change.

Also, demand from small firms was basically flat over the three-month period, the survey said.

Almost all domestic banks that reported easing standards or terms pointed to more-aggressive competition from other banks and non-bank lenders as the reason. Only about one-fourth of the banks that had eased lending policies cited a more favorable or less uncertain economic outlook as the impetus.

Even though some saw demand rise, it was a significantly smaller net fraction of banks seeing the increase than in a previous survey.

A large majority of the banks that reported stronger demand said that customers' funding needs related to inventories, accounts receivable, investment in plant or equipment and mergers and acquisitions were the important factors behind the increase.

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