But commercial real estate and consumer loans face stricter terms
US banks continued to tighten lending standards in the second quarter of 2024, according to the Federal Reserve’s latest loan officer survey. However, the pace of tightening has slowed compared to the previous quarter.
The July 2024 Senior Loan Officer Opinion Survey (SLOOS) highlighted changes in lending standards and demand for loans over the past three months. It found that banks are still cautious but have slightly relaxed their grip on lending compared to earlier this year.
For commercial real estate (CRE) loans, many banks reported stricter requirements, particularly for properties like office buildings and retail spaces, which have been under pressure due to changing market dynamics.
This comes as demand for CRE loans has weakened, with moderate net shares of banks observing reduced interest from borrowers. Interestingly, while domestic banks saw weaker demand, some foreign banks reported an uptick in demand for CRE loans during the second quarter.
While the residential real estate (RRE) market has shown some resilience, banks have also tightened lending standards for certain categories, such as jumbo mortgages and home equity lines of credit (HELOCs). This suggests that lenders are becoming more selective in their mortgage lending as economic conditions evolve.
While the overall trend is toward tighter lending, banks cited a variety of factors influencing their decisions, including a less favorable economic outlook, worsening industry conditions, and increased risk concerns.
“A significant net share of banks reported weaker demand for non-qualified mortgage (QM) non-jumbo mortgages, while moderate net shares of banks reported weaker demand for government, QM non-jumbo non-government-sponsored enterprise (GSE)-eligible, subprime, and non-QM jumbo mortgage loans, and modest net shares of banks reported weaker demand for GSE-eligible and QM jumbo mortgage loans. Meanwhile, banks reported that demand for HELOCs was basically unchanged,” the report noted.
On the commercial and industrial (C&I) loan front, banks reported modest tightening of standards, primarily driven by concerns about a deteriorating economic outlook and increased risk aversion. Demand for C&I loans remained relatively unchanged, indicating a steady business environment.
The survey also highlighted a divergence in lending practices between large and smaller banks. Larger institutions have been more reluctant to tighten standards compared to their smaller counterparts, suggesting a varying appetite for risk across the banking sector.
The July 2024 survey gathered responses from 65 domestic banks and 20 US branches and agencies of foreign banks.
These insights suggest that while caution prevails, there is a slight relaxation in lending standards, particularly in the commercial and residential real estate sectors. This could signal a gradual improvement in the availability of credit for these critical areas of the economy.
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