Loan lending standards ease and demand rises, July Loan Survey says

By Sara Rosenberg

New York, Aug. 5 - Lending standards eased and demand grew for commercial and industrial loans in the second quarter, according to the July Senior Loan Officer Opinion Survey on Bank Lending Practices.

On balance, almost all terms on loans were reportedly eased, regardless of firm size, with sizeable net fractions of respondents indicating that spreads were decreased. Also, moderate to large net fractions of banks reported having reduced interest rate floors.

Banks that reported easing standards or terms attributed the move to more aggressive competition from other banks or nonbank lenders. The next most popular reasons indicated by respondents were a more favorable or less uncertain economic outlook and an increased tolerance for risk.

Regarding demand, a moderate net fraction of banks indicated that they had experienced stronger demand from small firms, and a modest net fraction of banks said demand from large and middle-market firms had increased.

Banks reporting stronger loan demand most often cited increases in customers' funding needs related to investment in plant or equipment, inventories and accounts receivable as the top reasons. About half of the banks also mentioned shifts in customer borrowing to their bank from other bank or nonbank sources because those sources became less attractive.

There were some respondents that reported weaker demand for loans, and they cited decreases in customers' funding needs for merger and acquisition financing, investment in plant or equipment, accounts receivable or inventories as the top reasons. In addition, about half of the banks that saw weaker demand pointed to increases in their customers' internally generated funds, and about half reported shifts in customers' borrowing away from their bank because other sources of bank or nonbank borrowing became more attractive.

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