Loan terms ease in third quarter, demand flat, Senior Loan survey says

By Sara Rosenberg

New York, Nov. 4 - Terms on commercial and industrial loans have eased over the last three months and demand was basically unchanged, according to the October 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices.

While respondents indicated that almost all terms on loans were eased, regardless of firm size, only a modest fraction said that they had eased their standards for loans.

Of the terms that were eased, a large net fraction of respondents reported a decrease in spreads for all firm sizes, a moderate net fraction of banks reported having reduced the cost of credit lines and decreased the use of interest rate floors for all firm sizes, and a modest fraction of banks said they had eased loan covenants, though primarily to large firms.

Among respondents that reported easing standard or terms, all pointed to more-aggressive competition from other banks or nonbank lenders as an important reason for having done so. About one-third of respondents also said a more favorable or less uncertain economic outlook affected their decision, and about one-third indicated increased tolerance for risk as being an important reason for easing. Additionally, modest fractions of banks said increased liquidity in the secondary market and improvement in banks' current or expected liquidity positions played a part.

Regarding demand, the number of banks that reported having experienced weaker demand was about the same as the number of banks that experienced stronger demand.

Banks reporting stronger demand most often cited increases in customers' merger or acquisition financing needs, and customers' increased need to fund investment in plant or equipment, inventories and accounts receivable as reasons. About one-half of those respondents also cited shifts in customer borrowing to their bank from other bank or nonbank sources because those sources became less attractive.

Banks reporting weaker demand often cited as reasons decreases in customers' funding needs related to investment in plant or equipment, inventories, or merger or acquisition financing needs. About one-half those respondents also cited shifts in customers' borrowing away from their bank because other sources of bank or nonbank borrowing became more attractive, and less than one-half reported increases in their customers' internally generated funds.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.