Fed Survey Shows Weakening Demand for C&I Loans

Bankers left commercial and industrial lending standards mostly unchanged amid weakening demand in the third quarter of 2019, according to the Federal Reserve’s latest senior loan officer survey released today. Banks reported tightening standards on commercial real estate loans while demand for those loans remained relatively unchanged. Residential real estate lending standards also remained unchanged, though respondents noted stronger demand.

Regarding C&I lending, 29.7% of respondents reported slightly weaker demand for loans at large and middle-market firms, while 19.7% cited moderately weaker demand among small firms. Roughly 63% cited decreased customer investment in plant or equipment as a somewhat important factor driving weakening demand—and another 22.7% cited it as a very important factor. Nineteen percent cited customers shifting their borrowing to other banks or nonbank sources as a very important factor, while 38.1% said it was a very important factor.

On the CRE side, 18.9% said they tightened standards somewhat on construction and land development loans, while 13.3% said they tightened somewhat on loans secured by nonfarm nonresidential properties. Twelve percent said they tightened somewhat—and 1.3% said they tightened considerably—credit standards for loans secured by multifamily residential properties.

Meanwhile, on the residential lending side, respondents reported moderately or substantially stronger demand for residential loan products broadly, with the exception of subprime residential mortgages, for which demand was unchanged. Respondents also saw stronger demand for other types of consumer loans, including credit cards and auto loans.