Banks continue to ease lending standards, see increase in demand, July loan survey finds

By Sara Rosenberg

New York, Aug. 15 - Domestic commercial banks continued to ease lending standards and terms for commercial and industrial loans and experienced stronger demand for these loans over the past three months, according to the July 2005 Senior Loan Officer Opinion Survey.

About 15% of respondents said that they had eased credit standards for loans to large- and middle-market firms, a slightly lower net fraction than in recent surveys, and 11% of domestic banks reported eased standards for small firms, down from almost 25% in April.

When it comes to costs, on balance, 50% of domestic banks indicated that they had reduced the costs of credit lines for large and middle-market firms in July, up from 40% in the April survey. About 45%, a somewhat smaller net percentage than in the previous survey, reported that they had narrowed spreads of loan rates over their cost of funds for large- and middle-market firms.

Other lending terms have been eased by domestic banks as well. For example, more than one-fifth of banks increased the maximum size and the maximum maturity of credit lines they are willing to extend to large- and middle-market firms.

Almost all domestic banks that reported having eased their lending standards and terms in the July survey cited more-aggressive competition from other banks or non-bank lenders as an important reason for having done so. Large fractions of those respondents also pointed to an increased tolerance for risk and a more favorable or less uncertain economic outlook as reasons for easing.

As for demand, 40% of domestic banks saw stronger demand for C&I loans from large and middle-market firms, about the same share as in the April survey, and about one-third of domestic respondents also experienced stronger loan demand from small firms.

Regarding future business, 27% of domestic banks indicated that inquiries from potential business borrowers had increased over the past three months, down from about 40% in the April survey.

A large majority of the domestic respondents that saw stronger loan demand pointed to borrowers' increased financing needs for accounts receivable and inventories as well as for investment in plant and equipment as having driven the rise in demand, same reason given in the April survey.

A substantial fraction of domestic banks also pointed to a rise in merger and acquisition activity.

© 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.