Latest Senior Loan Officer Opinion Survey Indicates Easing Credit Standards

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The latest results from the Federal Reserve Board’s Senior Loan Officer Opinion Survey (SLOOS) present standards on bank lending practices as they occurred in the first quarter of 2021. The three major categories of lending covered by the survey are Commercial and Industrial (C&I) loans, Commercial Real Estate (CRE) loans, and Residential Real Estate (RRE) loans. The survey distinguishes the responses between domestically chartered banks and selected branches and agencies of foreign banks of the United States, but, for the purpose of this analysis, we focus on the former category only.

As the economy shifted gears in the beginning of the new year, with promise of a rapid vaccine rollout, banks sought to provide viable means of financing to a host of borrowers, ranging from large- and middle-market firms (businesses with annual sales of $50 million or more) to prospective homeowners seeking mortgages. In the C&I loan category, survey respondents indicated that, on balance, they eased their standards to firms of all sizes over the first quarter. Banks reported weaker demand, on net, for C&I loans to large and middle-market firms, and demand for C&I loans from small firms remained basically unchanged.

In CRE lending, the survey indicated slightly more lenient standards (as compared to the fourth quarter of 2020) across its three subcategories: construction and land development, nonfarm nonresidential, and multifamily. On the demand side, stronger demand was reported, on net, for construction and land development and multifamily while, on net, demand for nonfarm nonresidential loans was less weak than it was in the previous quarter.

In residential real estate lending, i.e., mortgage lending, banks reported that they had “eased somewhat” credit standards of lending to mortgages of most categories except for subprime residential mortgages. Meanwhile, demand across all residential loan types was largely reported as “moderately stronger”.

The SLOOS also contained a special set of questions related to lending practices as compared to pre-pandemic levels. According to the survey, compared to the end of 2019, lending standards for approving applications for credit cards to borrowers tightened, on net, across all risk categories (demarcated by FICO scores). The same was true for auto loan applications.



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