Fed Survey: Banks Continue to Tighten on CRE Lending

Bankers continued tightening credit for commercial real estate and certain consumer loans in the first quarter of 2017, while commercial and industrial lending standards remained unchanged, according to the Federal Reserve’s latest senior loan officer survey released yesterday. Residential mortgage lending remained relatively unchanged.

Regarding CRE lending, a net 32.4 percent said they tightened standards somewhat on construction and land development loans, while 36.1 percent said they tightened somewhat or considerably on multifamily loans. On net, 12.5 percent said they tightened standards for loans secured by nonfarm nonresidential properties. Lenders cited uncertainties on CRE property prices and vacancy rates and other fundamentals on CRE properties as key reasons for tightening. Reduced risk tolerance, less aggressive competition and regulatory concerns were also important factors. Overall, respondents reported weaker demand for CRE loans during the first quarter.

Commercial and industrial lending was mostly unchanged, though a few firms reported slightly easing their standards for large- and middle-market firms (2.8 percent) and for small firms with less than $50 million (2.9 percent). Banks that reported easing cited more aggressive competition from other banks or nonbanks and a more favorable economic outlook as key reasons. Other factors included increased risk tolerance, an improvement in current or expected capital positions and improvement in industry-specific issues. Seven percent on net reported moderately or substantially weaker demand for C&I loans among large firms, while 8.7 percent on net reported moderately or substantially weaker demand among small firms.

Meanwhile, on the residential lending side, banks reported that both loan demand and loan standards remained mostly unchanged, though a net 11.3 percent noted that they eased standards somewhat or significantly for GSE-eligible mortgages. Bankers also said they tightened lending standards on auto loans during the first quarter, while credit card lending standards eased. Banks reported an overall weaker demand for consumer loan products in the first quarter.