WASHINGTON — While loan standards overall remain tight, there are signs they are beginning to loosen, according to a report issued Thursday by the Office of the Comptroller of the Currency.
In the agency's 16th annual underwriting survey, it found that banks eased terms slightly in response to competition and a slight improvement in credit market liquidity.
"We are beginning to see some recent signs that standards may be loosening," Dave Wilson, deputy comptroller for credit and market risk, said in a press release. "That's good for credit markets as long as bankers remember to stick to sound underwriting principals and do not compromise standards because of competitive pressures or the assumption that loans will be sold to third parties."
Still, many loan areas saw tighter standards, but at a lesser rate than in the 2009 survey. For example, examiners found tightened standards for commercial products in 65% of banks, compared with 86% a year ago. Similarly, the report found tighter standards for retail products at 74% of banks surveyed, compared with 83% in 2009. Just like last year, banks used pricing as their main method to modify standards for commercial loans, while loan covenants and collateral requirements were also tightened.
For residential construction, 64% of banks tightened standards in 2010, compared with 92% in 2009. Commercial construction standards were tightened for 72% of banks, compared with 80% a year ago. Small-business loans experienced 66% tightening of terms, up from 64% in 2009.
For retail products, bankers blamed the tighter standards on the economy, portfolio quality and risk appetite. For credit cards, they cited the 2009 Credit Card Accountability, Responsibility and Disclosure Act as potentially tightening standards. Banks tightened credit card underwriting standards for 81% of loans, up from 68% the previous year. Retail products' underwriting was tightened through minimum credit score approval, pricing changes, increased documentation, collateral and debt-service requirements.
For the third year running, banks continue to tighten underwriting for all loans, regardless of whether they are originate to distribute loans or intend to hold.
The OCC conducted the survey of the 51 largest national banks during a 12-month period that ended March 31, 2010.