Banks continued to clamp down on credit to business borrowers over the summer, but they remained ready to lend to consumers, according to a quarterly survey of lenders by the Federal Reserve Board.
"The results indicate a continued slight firming of business lending practices," the Fed said Monday in releasing the survey. It "found little evidence of any changes in standards and terms on loans to households."
One-fourth of 56 large domestic banks said they tightened terms on commercial and industrial loans, according to the Fed. More than half of 22 foreign banks operating here said they tightened both the standards and the terms of business loans.
The terms most frequently affected were the size and cost of credit lines and amount of collateral required. Banks also increased premiums on riskier loans.
Loan officers blamed industry-specific problems, uncertainty about the economy, and less tolerance for risk, according to the report.
Still, this summer's standards were looser than those of last fall when lenders cracked down in response to upheaval in international financial markets, said David Orr, chief economist of First Union Corp. of Charlotte, N.C. "The degree of changes in these terms is very, very modest," he said. "It reflects a stability in the economy and less worrying by the banks."
Loan demand from large and middle-market borrowers was basically unchanged from the prior survey, which was released in May, lenders told the Fed. Demand for small-business credit was also steady. The Fed posed two questions on credit quality, which were answered by only 22 of the 78 bankers surveyed.
When asked about changes over the last year, about a third of the bankers said commercial and industrial loans have become somewhat more vulnerable to an economic downturn. Domestic lenders blamed borrowers' greater leverage and narrower profit margins as well as banks' eased lending standards.
Foreign lenders also cited a shift in the composition of borrowers toward riskier credits.
On commercial real estate loans, less than 10% of domestic lenders said they had raised their underwriting standards, while nearly 40% of foreign lenders said they did. "Only about half of the foreign bank respondents answered the questions on commercial real estate loans, likely reflecting the departure of many of the branches and agencies from this line of business," the Fed said.
As for consumer lending, most banks said credit standards and demand remained steady over the summer. However, higher rates have cooled mortgage demand, the Fed said. Delinquency and chargeoff rates on these loans have not become more sensitive to an economic downturn, according to most lenders.
In response to a series of special questions, lenders said prospects for year-2000 problems have not prompted a wave of requests for contingency lines of credit. But some of the requests have been substantial and bankers said they expect demand to increase.
Most of the credit line requests so far are from domestic banks, finance companies, mutual funds, securities dealers, and thrifts. All of the lenders said they were willing to extend these lines, yet 68% said they would only do so for existing customers.
Lenders said the potential among their customers for computer-related problems, such as missed payments, because of the date change poses little risk to portfolios. Almost all the survey respondents said more than 95% of their customers are fully prepared.
The Fed asked several questions about whether banks will use its Century Date Change Special Liquidity Facility, which will extend credit from Oct. 1 through April 7 at 150 basis points above the federal funds rate.
More than 80% of domestic and foreign banks said the creation of the liquidity facility had not changed their willingness to extend year-2000-related lines of credit.
The 56 domestic lenders in the survey were from banks that accounted for $2.08 trillion of assets, or 45% of the industry's total. The 22 from foreign banks operating in the United States accounted for $200 billion of assets, or 26% of the foreign bank total.