Competitive pressures have so depressed interest rates on loans that increasingly banks are not adequately rewarded for the risks they take, according to a survey by KPMG Peat Marwick.

The study found that consolidation among bigger banks and the apparently advanced phase of the economic cycle has forced regional and community banks to relax rates and loosen convenants.

That's found to be especially true for commercial real estate and small- business loans.

All this, the survey concluded, is accompanied by banks' apparently slowing their efforts to refine risk-management procedures after aggressively building them in 1995.

"Financial institutions are either unable to identify incremental risk or are forced by competitive pressures to price transactions inappropriately," KPMG said in its annual survey of bank credit risk management practices released Tuesday.

Despite these developments, however, most banks said they expected commercial loan and mortgage delinquencies to remain stable over the next 12 months.

John Hagen, senior manager at KPMG, said that the trend toward looser lending standards is being driven by high-grade corporations' borrowing from a handful of big banks.

This is forcing smaller, less-sophisticated lenders to do more business with speculative, unrated companies.

"The high end of the market is more efficient than ever," Mr. Hagen said. "But down below, where you don't see things like loan syndications, it's a different story.

The economy's hot, but there are fairly limited loan opportunities."

Keith E. Bouchey, executive vice president of Gold Banc Corp., a company with $310 million in assets based in Leawood, Kan., said small banks are taking on more construction loans than they did previously because some builders won't or can't do business with the area's big banks, NationsBank Corp. and Mercantile Bancorp.

He attributed the trend of depressed rates to the rise of new community banks in his area.

"Around Kansas City there are a lot of new bank charters, and these entrants are trying to buy business because that's the way they see their way in," he said.

Competition doesn't come only from rival banks, of course. Independent finance companies have long been around, and in recent years more entrepreneurs have learned about securitization, which offers a lower cost of funds than a loan.

Compounding difficulties for small and midsize banks is that in today's bull market for stocks they face greater pressure than ever from shareholders to maximize returns.

But with so many sources of competition, banks are finding themselves forced to cede on price or ease up on loan covenants more often than 12 months ago.

"My feeling is this is happening, but I couldn't really quantify how much or how often," Mr. Bouchey said.

As for the decline in risk management, Mr. Hagen says it may be a case of the derivatives debacles of 1994 fading from memory.

"After a crisis like that you get a lot of resolve from bankers not to make the same mistakes," he said.

"But with time that resolve usually dissipates until the next economic shock."

KPMG said lending standards have been eased the most in small business, commercial real estate, and construction loans.

About 28% of the 80 banks that responded to the survey said they expect to loosen standards for home equity loans, and 51% said they expect to tighten standards for issuing credit cards.

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