Lending standards continue to ease; demand is flat, April Loan Survey finds

By Sara Rosenberg

New York, May 15 - Domestic banks continue to ease lending standards and terms on commercial and industrial loans, but, in contrast to previous surveys, many of these banks are seeing little change in demand for loans from large and middle-market firms, according to the Federal Reserve April Senior Loan Officer Opinion Survey on Bank Lending Practices.

Over the past three months, about 12% of domestic institutions said that they had eased credit standards on commercial and industrial loans to large and middle-market firms, roughly the same net fraction as in the January survey.

Of the eased standards for these large and middle-market firms, about 60% of domestic respondents reported that they had trimmed spreads of loan rates, about 40% indicated that they had reduced the costs of credit lines and about one-fifth reported that they had increased the maximum maturity of loans or credit lines.

For loans to small firms, 7% of domestic respondents said that they had eased their lending standards, with almost 50% of banks indicating that they had narrowed spreads of loan rates and about 30% reducing the cost of credit lines.

More-aggressive competition from other banks or nonbank lenders was named as a prime reason for eased standards by nearly all the domestic institutions.

A significant net percentage also cited an increased tolerance for risk and increased liquidity in the secondary market for these loans as reasons for having eased credit standards or terms on commercial and industrial loans.

On balance, demand for commercial and industrial loans from both large and middle-market firms and small firms were reportedly little changed in the April survey at domestic institutions.

Among those that had experienced stronger demand, all cited borrowers' increased needs to finance investment in plant or equipment, while three-quarters pointed to increased needs to finance mergers and acquisitions.

Among those that experienced weaker demand, 90% indicated that customers' internally generated funds had increased. Sixty percent of these banks also pointed to borrowers' decreased needs to finance investment in plant or equipment as a reason for weaker loan demand.

Regarding future business, about 10% of domestic respondents indicated that the number of inquiries from potential business borrowers had increased over the previous three months.

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