Bankers Expect Oil and Gas Loan Quality to Deterioriate

Credit standards continued to ease in most commercial and consumer loan categories, according to the Federal Reserve’s latest senior loan officer survey released today. The survey showed bankers concerned about deteriorating quality in oil and gas portfolios. To mitigate risks of oil and gas loan losses, loan officers were focused most on tightening underwriting, reducing existing credit lines and restructuring outstanding loans.

A net 56.8 percent of respondents said that loan quality was likely to fall based on current forecasts for conditions in the oil market. However, 31 percent said they do not make loans to firms in the oil and gas business, and of those that do, 82.4 percent said that oil and gas makes up less than 10 percent of their portfolio.

Standards for business loans eased as demand grew. A net 5.3 percent said they eased loan standards for large and medium-sized firms, while a net 1.4 percent reported easing standards for small businesses. Meanwhile, loan demand from large and medium-sized firms held steady; a net 4.1 percent found stronger loan demand from smaller firms. Banks increasing credit generally responded to aggressive competition for loans. Loan officers reported easing on commercial real estate loans, with 20 percent saying demand was up for CRE lending.

Loan officers also saw easing standards on the full range of home mortgage products except for subprime loans and non-jumbo, non-GSE-eligible Qualified Mortgages. A strong 17.7 percent said they eased standards for GSE-eligible home loans, and 10.4 percent said they eased standards on jumbo Qualified Mortgages. Demand was stronger across most categories. The survey showed easing demand for home equity lines of credit, auto loans, installment loans and credit cards.