Fed Survey Shows Further Stabilization in Q4 Credit Practices, Demand

Loan demand and standards for lending continued to stabilize in the fourth quarter of 2020 after the economic freefall caused by the COVID-19 pandemic in the second quarter. Fewer banks reported tightening on commercial and industrial, commercial real estate, personal loans, although most banks kept standards unchanged, according to the Federal Reserve’s senior loan officer survey released today.

  • C&I. Half as many banks on net reported tightening standards on C&I loans for firms of all sizes in the fourth quarter versus the third quarter, while the share of banks that eased quadrupled for large and midsize businesses. Roughly 7 in 10 banks kept their standards unchanged. The handful of banks who eased standards cited an improving economic outlook as the most important reason. C&I loan demand was mixed but was slightly weaker on net—although the share of banks reporting stronger demand from large and midsize firms rose by about 10 points from the third quarter. Banks seeing stronger C&I demand said the most important factors were growing client M&A financing needs
  • CRE. The CRE market also saw stabilization in Q4, with roughly 7 in 10 banks keeping standards unchanged for construction and land development loans and loans secured by nonfarm nonresidential properties. The remainder of banks tightened standards as almost none reported easing standards for CRE loans. On net, banks reported slightly weaker demand for CRE loans with the exception of multifamily.
  • Mortgages. Most banks kept standards unchanged for mortgage loans in the fourth quarter. On net, 3.3% of banks reported easing standard for conforming mortgages. Demand for mortgages eased substantially, with just 6.4% of banks on net reporting stronger demand for conforming loans—down from 65% in the third quarter. The weaker demand came as the Federal Housing Finance Agency imposed a surcharge on GSE refinances.
  • Personal loans. Credit cards saw the 2020 trend in tightening reverse, with 12.8% of banks on net easing standards on credit card loans. The Q3 pattern of eased standards for auto loans also continued. Demand was mixed for credit cards and was moderately weaker for car loans.
  • 2021 projections. Over 2021, roughly three-quarters of banks projected their standards for C&I and CRE credit to remain unchanged, with modest net percentages of the remaining banks projecting tighter standards. However, for residential mortgages and auto loans, while more than 8 in 10 expected standards to remain unchanged, the balance expected to ease standards. A little under half of banks expected C&I loan demand to improve, with most of the rest expecting it to remain the same.