WASHINGTON — Banks boosted underwriting standards for commercial real estate loans during the second quarter, while keeping standards level for commercial and industrial loans, according to a report issued Monday by the Federal Reserve Board.
The central bank's quarterly Senior Loan Officer Opinion Survey also found that demand decreased for both types of loans, short of optimistic forecasts made earlier this year.
“On balance, demand for [C&I] loans weakened over the second quarter of 2017 while banks left their standards on C&I loans basically unchanged,” the report said. “While standards for C&I loans stayed leveled in the second quarter, banks raised the bar on CRE loans.”
The most frequent reasons cited by banks for the declining demand for C&I loans included shifts in customer borrowing to other banks, decreases in inventory financing, plant and equipment investments and mergers or acquisitions.
For CRE loans, the shift was not the same across the board. Construction and land development loans were less in demand for a fraction of banks, the Fed found, while demand for nonfarm residential loans “remained basically unchanged.”
Broadly speaking, domestic banks have slackened their standards for C&I loans since 2005, while banks' standards for CRE loans have toughened during that time. Respondents that eased standards for C&I loans in the second quarter reported that the cause was “more aggressive competition from other bank or nonbank lenders,” the Fed found.
Consumer loans were more of a mixed bag. “On balance, banks’ current levels of standards on consumer loans were reported to be on the tight end of the range since 2005 for subprime borrowers while being somewhat easier for prime borrowers,” the Fed found.