The two-year boom in commercial lending may be coming to a close, according to a Federal Reserve Board survey released Monday.

More than 20% of large banks surveyed said that business loan demand had fallen in the past three months, the Fed said in its quarterly poll of senior loan officers.

For the first time since early 1996, banks reporting weaker business loan demand outnumbered those reporting stronger demand, the Fed said. The gap was 10 percentage points.

Those surveyed attributed the slackening demand to declines in mergers, plant and equipment investments, and inventory needs, and to increases in the use of nonbank lenders and internally generated funds.

"A lot of businesses see the economy being pretty slow for a while to come," said Paul F. Dorfman, executive vice president at BankAmerica Corp., San Francisco, and chairman of Robert Morris Associates, a commercial lenders' trade group in Philadelphia. "That means there is less need to borrow for new plant and equipment."

"Demand has slowed down considerably," said William S. Aichele, president and chief executive officer of Union National Bank, Souderton, Pa. "There are not sufficient borrowers to meet the needs of the banks."

Dorothy M. Horvath, executive vice president and chief credit officer at National City Bank, Cleveland, said she is worried that the industry may have trouble making up for the loss of long-term corporate loans to pension funds and other nonbanks.

"Unless you have the ability to replace those loans, you will see a drop in outstandings," Ms. Horvath said.

The fall in demand was partly offset by a decline in supply as foreign banks pulled back from commercial lending in the United States.

Of 24 foreign banks surveyed, 14 said they were retreating because their parent companies' poor condition had made it too costly to raise funds to finance loan growth. Also, most foreign banks said their loan products were less competitive because their parent companies are requiring tighter standards and terms.

Kevin M. Blakely, group executive vice president for risk management at KeyCorp, Cleveland, said the retreat contributed to a "firming up of demand" at his bank. "The large Japanese banks have been focused internally and have not been seeking credits in the U.S. market," he said.

Nicholas S. Perna, chief economist at Fleet Financial Group, Boston, said he expects demand for commercial loans to moderate but not fall, because few companies are willing to permanently dip into profits to finance growth. "It would take a fairly severe recession for demand to fall outright," he said.

The Fed said standards on loans to large corporations changed little. About 15% of the banks said spreads had narrowed, citing competition. That's down from the 35% that reported tighter spreads in the May survey.

Mr. Perna said the mostly positive data on terms and spreads should reassure Fed Chairman Alan Greenspan that banks are not about to binge on speculative lending, as they often do at the end of a business cycle in a bid to spark demand. A burst of speculative lending could ignite unsustainable economic growth, forcing the Fed to hike short-term interest rates to slow the economy, he said.

For consumer loans, 20% of bankers said they tightened standards for credit cards, versus 80% who kept standards steady. No bank said it loosened standards. Still, bankers said they were more likely to make new consumer loans now than three months ago.

There was little change in credit card terms, an area where recent surveys found tightening. Almost 40% of the banks said this tightening had "virtually no" or "minimal" impact on borrowing.

The senior loan officer survey is prepared for the Federal Open Market Committee, the Fed's rate-setting body. It covers 57 domestic banking companies with a combined $2.07 trillion of assets and 24 foreign banking companies with a combined $237 billion in U.S. assets.

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