Business Recovery Drives Business Loan Demand, Eased Standards

As the small business recovery took off in the second quarter, a substantially larger share of banks reported easing standards for business loans, continuing the easing trend seen in the first quarter of 2021, according to the senior loan officer opinion survey released by the Federal Reserve today.

  • C&I. Banks reported substantial variation in C&I loan demand, with roughly 45% of banks reporting unchanged demand and the remainder split between seeing more or less demand—although on net, roughly 7% of banks reported stronger demand. Banks seeing stronger C&I demand said the most important factors were growing accounts receivable and inventory financing needs and client investments in plants or equipment.
  • CRE. The commercial real estate market continued to stabilize in Q2, with nearly nine in 10 banks keeping standards unchanged for construction and land development loans, while three-quarters saw standards for multifamily CRE loans remain unchanged. On net, 37% of banks saw stronger demand for multifamily loans, while 21% of banks saw stronger demand for construction and land development loans and 14% saw stronger demand for nonfarm CRE loans.
  • Mortgages. Almost all banks kept standards unchanged for conforming and government mortgage loans in the second quarter. However, with housing prices continuing to rocket up in Q2, more than three in 10 eased standards for Qualified Mortgage-designated jumbo loans, a quarter eased standards on non-QM jumbos and one in five eased on non-jumbo, non-conforming QMs. Roughly a quarter of banks on net saw stronger demand for jumbo loans.
  • Personal loans. The trend in easing standards for consumer credit accelerated, with 37% of banks on net easing standards on credit card loans, 19% on net easing standards on auto loans and 17% on net reporting eased standards on other consumer loan types. On net, 32% saw increased demand for credit cards and 27% saw stronger demand for auto credit.