Some banks are easing their lending standards in order to attract more customers, but most remain reluctant to relax standards on commercial and retail loans until the economy improves, according to a new survey from the Office of the Comptroller of the Currency.
In its annual survey of its bank examiners, the OCC found that 70% of banks have not changed their underwriting standards for commercial loans over last year while 63% have maintained their standards on retail loans. Only 14% have relaxed their lending standards — mostly by offering better pricing — on commercial loans and 15% have eased up their underwriting on home, auto, credit card and other retail loans.
"In the aftermath of the financial crisis, some banks continued to have elevated credit risk exposure, and many banks continue to struggle with high levels of problem credits, declining collateral values, and uncertainty about the economic outlook," the OCC said in its summary of its 18th annual survey of credit underwriting practices. "In response, those banks have either tightened or left their underwriting standards unchanged."
The examiners were surveyed following their assessments of underwriting standards at 87 banks with assets of at least $3 billion. These banks had a total of $4.6 trillion of loans at Dec. 31, representing 91% of outstanding loans at all banks and thrifts.
The survey covered the 12-month period that ended Feb. 29 and for the first time included federally chartered thrifts, which are now overseen by the OCC following the elimination last year of the Office of Thrift Supervision.
The OCC said that the 18 largest banks it oversees were more likely than smaller regional and community banks to relax their lending standards over the last year.
Those banks that are easing standards are doing so because they are flush with deposits and are eager to grow their loan portfolios after years of downsizing. Banks that have been tightening their standards cited changes in their overall risk appetite and concern about certain types of loans, particularly loans related to real estate and construction.
Among loan types, banks appear most comfortable making leveraged loans. While only 13 of the banks surveyed make such loans, 38% said they have eased their standards in the last year and none said that they have tightened standards. In the same survey two years ago, no banks reported loosening standards and 75% reported tightening them.
Banks are also growing increasingly comfortable with credit card and indirect consumer loans, which are mostly car loans. Thirty-five percent of the banks that make credit card loans said that they relaxed their lending standards by offering more favorable terms and rates - compare to 0% two years ago - 60% of banks that make indirect loans eased their standards.
Nearly half the banks surveyed offer small-business loans and, among that group, 82% said their standards had not changed in the past year, while only 9% said that their standards had eased.