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The Federal Reserve's fourth-quarter senior loan officer opinion survey (SLOOS) revealed that banks will continue to see deteriorating lending conditions as loan performance is expected to decline in 2019.

“The Fed’s fourth-quarter SLOOS indicates that current and anticipated lending conditions among banks are deteriorating," said NAFCU Chief Economist and Vice President of Research Curt Long. “Loan demand is weakening across a broad range of loan types, and lending officers expect loan performance to decline this year even as standards tighten. It is notable that the survey was conducted during the government shutdown, when a number of other economic sentiment indices plummeted. But it is certainly another troubling sign on the horizon and warrants the patience that the FOMC has recently begun preaching.”

During the fourth quarter, banks reported tightened standards for commercial real estate (CRE) loans, while standards and most terms on commercial and industrial loans remained unchanged. Meanwhile, demand for loans to businesses reportedly weakened.

The survey included additional special questions on banks’ expectations for lending policies and loan performance over 2019. Banks are expected to tighten standards for all categories of business loans as well as credit card loans and jumbo mortgages.

Banks also expected that the demand for most loan types will weaken, on net, with the one exception being credit card loans, for which demand is expected to remain unchanged. Meanwhile, banks anticipate that loan performance will deteriorate for all surveyed categories.

This senior loan officer survey was based on responses from 73 domestic banks and 22 U.S. branches and agencies of foreign banks.