Fed Survey: Coronavirus Pandemic Weakens Demand for CRE, Consumer Debt

Demand for commercial and industrial loans was mixed in the first quarter, as the COVID-19 outbreak was beginning to strike the U.S. economy, according to the Federal Reserve’s latest survey of senior loan officers today. Many businesses sought to bulk up on cash or replace lost revenue, while others dropped plans to take on debt for capital investment. Meanwhile, commercial real estate and consumer debt demand fell, and low rates drove higher demand for mortgage loans.

C&I. As the overall economy and specific industries’ conditions worsened, on net, roughly four in 10 banks reported tightening standards for C&I loans for firms of all sizes—substantially larger shares seen than in previous reports. Banks tightening were most likely to tighten by increasing spreads and using interest rate floors. Banks saw divergent demand trends for C&I loans, with about a third seeing stronger demand from large and midsize firms (driven mostly by falling customer revenues or protective demand for liquidity), about a quarter seeing weaker demand (due mostly to falling investment and M&A financing needs) and four in 10 seeing the same levels of demand.

CRE. On the commercial real estate side, more than half of banks said they tightened standards somewhat on construction and land development loans and loans secured by nonfarm nonresidential properties, while just under half tightened on multifamily residential property loans. No banks reported easing standards for CRE loans.

Mortgages. Small net percentages reported tightening standards for conforming mortgages, while on net 5.5% said they eased on government mortgages. Just under 20% said they tightened standards on jumbo loans. As many as half of banks reported stronger demand for mortgages in every category, with one in five reporting “substantially stronger” demand for GSE-eligible loans, most likely driven by low rates. About 20% of banks also reported tightening on home equity lines of credit.

Cards, Auto. Nearly four in 10 banks reported tightening standards on credit cards, mostly by cutting credit limits and increasing minimum credit scores, and the long-running tightening trend on auto loans accelerated, with 16% of banks tightening. Banks reported weaker or unchanged demand in both categories.