Lending standards for business and consumer loans tightened during the first quarter of 2023, with weaker demand reported in all loan categories, according to the Federal Reserve’s senior loan officer opinion survey released today. Banks reported that they expected lending standards to tighten across all loan categories for the remainder of the year. As for the reasons for the tightening, many banks expected deterioration in the credit quality of their loan portfolios and in customers’ collateral values, a reduction in risk tolerance, and concerns about bank funding costs, bank liquidity positions and deposit outflows.
C&I. Significant net shares of banks (20%-50%) reported having tightened standards on C&I loans to firms of all sizes. Banks also reported having tightened all queried terms on C&I loans to firms of all sizes over the first quarter. Tightening was most widely reported for premiums charged on riskier loans, spreads of loan rates over the cost of funds and costs of credit lines. In addition, significant net shares of banks reported having tightened the maximum size of credit lines, loan covenants and collateralization requirements to firms of all sizes.
CRE. Major net shares of banks (more than 50%) reported tightening standards for all types of CRE loans. Such tightening was more widely reported by midsized banks than by either the largest or other banks. Meanwhile, major net shares of banks reported weaker demand for loans secured by nonfarm nonresidential properties, construction and land development loans, and loans secured by multifamily properties.
Mortgages. Lending standards tightened for most residential real estate loan categories and for HELOCs. Significant net shares of banks reported tightening standards for subprime mortgages, HELOCs and non-QM jumbo mortgages, while moderate net shares reported tighter standards on QM jumbo, non-QM, non-jumbo, and QM non-jumbo, non-GSE-eligible mortgages. Overall, banks reported that standards remained basically unchanged for GSE-eligible and government residential mortgages. Meanwhile, major net shares of banks reported weaker demand for all residential loans other than government, QM non-jumbo, non-GSE-eligible, and HELOCs, for which significant net shares of banks reported weaker demand.
Personal lending. Significant net shares of banks reported having tightened lending standards for credit card, auto and other consumer loans. Consistent with tightened standards for credit card loans, banks also reported having tightened almost all queried terms on credit card loans. Specifically, significant net shares of banks reported increasing minimum credit score requirements and decreasing credit limits, while moderate net shares reported decreasing the extent to which loans are granted to some customers that do not meet credit scoring thresholds and widening the interest rate spreads charged on balances.
