Fed: Credit Standards Hold As Business Loan Demand Up

Credit standards on commercial and industrial loans “changed little” in the final months of 2011, just as U.S. banks saw stronger demand for these types of loans, according to the latest quarterly survey of loan officers by the Federal Reserve.
Lending standards and demand for residential real estate loans were also little changed during the fourth quarter. Standards on home equity lines of credit were about unchanged, while demand for such credit weakened overall.
There was a “moderate” easing of standards on all types of consumer loans over the last three months of 2011, the Fed said, while some banks also eased terms on auto loans.  Demand for credit card and auto loans reportedly had increased somewhat, while demand for other types of consumer loans was about unchanged.
U.S. banks had tightened credit in the third quarter of 2011 as Europe’s debt crisis worsened, according to the central bank.
In the fourth quarter, the Fed reported today that there was more widespread tightening of standards than in the previous survey on loans to non-financial firms that have operations in the United States – but with significant exposures to European economies.
However, half of the U.S. bank respondents said they noted an increase in business over the past six months as a result of decreased competition from European banks (or their affiliates and subsidiaries).
Of the 56 domestic banks surveyed – receiving the questions on or after Dec. 21 and responding before Jan. 10 – the Fed said 53 reported lending conditions to big and mid-sized U.S. firms (annual sales of $50 million or more) had remained basically unchanged over the past three months.
Three said they had “tightened somewhat.” This was the first credit tightening since the final quarter of 2009.
On credit standards for small U.S. firms (annual sales of less than $50 million), 50 reported lending conditions remained basically the same, 2 reported tightening standards somewhat and 1 reported a somewhat easing of standards.
Meanwhile, the 23 U.S. branches of foreign banks that were interviewed, which mainly lend to businesses, reported a tightening of their standards.
“Domestic banks reportedly experienced stronger demand for (commercial and industrial) loans from firms of all sizes on net,” the Fed said.
About 50 percent of domestic banks expect a decline in the delinquency and charge-off rates on their commercial and industrial loans – both to large and middle-market firms and to small firms.
“Smaller domestic respondents were more likely to expect improvements in commercial and industrial loan quality this year than their larger counterparts,” the Fed said.
About 60 percent of domestic banks indicated that they expect improvement in the quality of commercial real estate loans in 2012.
However, U.S. branches of foreign respondents mostly anticipated no improvement in the quality of their commercial and industrial loans this year, and only about 25 percent of these respondents forecast improvement in the quality of their commercial real estate loans.

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