The Federal Reserve’s latest Senior Loan Officer Opinion Survey on Bank Lending Practices addresses changes in the standards and terms on, and demand for, bank loans to businesses and households. The lending data show a tightening of standards across all purposes , but sufficient demand-strength for gains in residential real estate.
For the third quarter, significant net shares of banks reported having tightened standards for commercial and industrial (C&I) loans to large, middle-market, and small firms. Meanwhile, they also continued enforcement of interest rate floors, which began in the second quarter. A significant net share of banks reported weaker demand for C&I loans to firms of all sizes during the third quarter.
In commercial real estate (CRE) lending, which includes multifamily residential real estate lending, financing construction and land development, and lending on nonfarm, nonresidential properties, a significant net share of banks reported a tightening of standards and a weaker demand.
As a sure sign of the times, the only category that strengthened in Q3 2020 was residential real estate lending, in both the supply and demand sides. On the supply-side, only a moderate net share of banks (13.6%) reported a tightening of standards in residential real estate lending, which was significantly less tightening than the previous quarter’s reading. For three residential loan categories of interest, GSE-eligible mortgages, QM jumbo loans, and non-QM jumbo loans, significant, positive net shares of banks (63%, 45%, and 39%, respectively) reported stronger demand. These reported demands were even stronger than the previous quarter.
Finally, the current edition of the Senior Loan Officer Opinion Survey included a special set of questions regarding bank practices in the third quarter with respect to forbearance, as many businesses and households experienced financial hardship as a result of the COVID-19-wrought slump. In the C&I loan category, four large banks and one other bank reported that their fractions of loans to large and middle-market firmed that were in forbearance were greater than 10% but less than 20%. In contrast, 43 banks, making up 64.2% of all banks surveyed, reported that 5% or less loans were in forbearance. Additionally, over 50% of the C&I loans in forbearance had terms of payment deferral, while lesser fractions experienced lower interest rates, maturity extensions, and principal reduction. Similar frequencies had been reported by banks on CRE and RRE loans.