Lenders are reporting stronger demand for commercial and private lending over the past two months, according to a report released Wednesday by the Federal Reserve Board, continuing a trend of mild-to-moderate improvement in banking fundamentals in recent quarters.
In the Fed's Beige Book on current economic conditions, the central bank said that steady improvements in the broader economy are spurring greater loan demand.
Home values are increasing in aggregate, the report said, and lower gasoline prices are contributing to higher auto purchases, particularly for trucks and SUVs. Mortgage lending is up in the San Francisco, Richmond, Chicago, St. Louis, Kansas City, Cleveland and Dallas districts, while credit conditions remain "stable or improved." The drop in energy prices is leading to precipitous declines in energy extraction, but is making existing rigs more capital-efficient, the report said. The stronger dollar has also lowered exports and freight in some districts, but has boosted import volume in some districts.
"Several districts, including Philadelphia, Richmond, Atlanta, St. Louis, and San Francisco reported modest to moderate increases in loan volumes," the report said, adding that the New York district reported "strong, broad-based pick up in loan demand" while the Dallas district experienced "slower overall growth.
The New York Fed reported that small- and medium-sized banks are experiencing "widespread increases in demand across all categories particularly non-residential mortgages" while the spreads of loan rates to cost of funds are tightening and delinquency rates are down.
The San Francisco Fed said that commercial and industrial loan activity continues to grow, and said that some contacts are hiring additional loan originators, underwriters and processors to keep up with demand. The Philadelphia Fed also reported "strong" growth in C&I lending, auto loans and credit cards.
Other districts' banking activities are more muted. The Dallas Fed reported slower demand than in the previous beige book report, owing in large part to the drop in oil drilling activity and continued downward projections. The bank estimated that capital expenditures will be down 30%-40% in 2015 and dropping even more in 2016.
The Richmond Fed said that residential lending and refinancing was flat or tepid in many areas of the district, and said many contacts attributed the anemic growth to greater regulatory burdens on mortgage lending. The Atlanta Fed, for its part, said that credit conditions were essentially flat from the last reporting period but that an improving business climate has spurred loan demand and competition among lenders.