WASHINGTON — Lenders continued to face challenges with loan growth in the second quarter as interest rates increased, a Federal Reserve Board report said.

"Lending activity weakened a bit, and several districts reported less-favorable conditions than in the preceding reporting period," according to the Fed's quarterly economic survey known as the Beige Book. "Most districts indicated no better than modest growth."

Among the 12 districts, Atlanta, Chicago, St. Louis and San Francisco all reported that lending growth was slower than in the previous period, while other districts found business lending "largely flat."

In New York, small to midsize banks reported a drop in demand for home mortgages but experienced little change in demand for other types of loans.

"Bankers report steady to somewhat softer loan demand, little change in credit standards, some leveling off in loan spreads, and widespread declines in delinquency rates," according to the Fed's report.

But in Philadelphia, loan demand grew at a "modest pace" across most categories and bankers said credit quality continued to improve.

However, in the Atlanta district, the survey found that "banking contacts did not witness any noticeable increase in overall lending as most borrowers had already taken advantage of lower rates."

Similarly, bankers surveyed in Chicago said "several financial market participants expressed concern about the impact of changing perceptions regarding monetary policy on long-term Treasury yields and equity markets."

Separately, demand for mortgage refinance loans also continued to decline in New York, Philadelphia, Cleveland, and Richmond districts.

Respondents in Philadelphia noted that the "most notable difference from the last Beige Book period was the further reduction in mortgage refinancing in response to higher interest rates," according to the Fed's report.

Bankers in Richmond also reported that higher interest rates have slowed lending activity "somewhat."

In Richmond, bankers said new residential mortgage lending was "holding up, but virtually every banker said that the refinancing had slowed," according to the Fed's report. "Overall, mortgage loan volumes were reported to be modestly lower."

Others also reported that new home purchases were a bright spot. In the Cleveland district, for example, several bankers reported an uptick in home purchases even while refinancings declined.

"While new purchase mortgages are trending higher, refinancing has dropped off," the report said.

The report, released Wednesday, also found that lending standards were largely unchanged across all lending categories, while credit quality improved.

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