May 02, 2016

NAFCU's Cohen eyes tightening commercial lending standards

The Federal Reserve's latest Senior Loan Officer Opinion Survey shows that banks have tightened their standards for commercial and industrial (C&I) loans and commercial real estate (CRE) loans during the first quarter of 2016.

The survey also showed that demand for C&I loans weakened but the demand for CRE loans increased during that time period.

"After two quarters of weakening demand, the demand for residential mortgages loans has strengthened noticeably during the first quarter, while lending standards for most types of residential loans eased moderately," NAFCU Research Assistant Yun Cohen said. "Meanwhile, loan standards for C&I loans tightened somewhat.

"The majority of banks that tightened standards for C&I loans identified a ‘less favorable or more uncertain economic outlook' as well as the ‘worsening of industry-specific problems' as important reasons to tighten," Cohen continued. "Specifically, sixty-five percent of respondents believed that the quality of loans made to firms in the oil industry is likely to deteriorate over the remainder of 2016."

According to the survey, banks reported stronger demand in all consumer loan categories during the first quarter. The survey includes responses from 70 domestic banks and 22 U.S. branches and agencies of foreign banks.