Lending standards for business and consumer loans tightened during the second 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 expecting to further tighten standards on all loan categories in the second half of the year. As for the reasons, banks most frequently cited a less favorable or more uncertain economic outlook. They also expected deterioration in collateral values and the credit quality of loans.
C&I. Major (more than 50%) and significant (20%-50%) net shares of banks reported tightened standards on C&I loans to large and middle-market firms and small firms, respectively. Banks reported tightening on all queried loan terms on C&I loans to firms of all sizes over the second quarter. Tightening was most widely reported for spreads of loan rates over the cost of funds, premiums charged on riskier loans, and costs of credit lines. In addition, significant net shares of banks generally reported having tightened the maximum size and maturity of credit lines, loan covenants, collateralization requirements and the use of interest rate floors to firms of all sizes.
CRE. Major net shares of banks reported tightened standards on all categories of CRE loans, with similar levels of net tightening reported by large banks and other banks. Meanwhile, major net shares of banks reported weaker demand for all CRE loan categories, with weakening in demand more widely reported by other banks than by large banks.
Mortgages. Banks reported tightened lending standards for all categories of residential real estate loans and HELOCs. Significant net shares of banks reported having tightened standards on non-qualified-mortgage jumbo residential loans and HELOCs, while moderate net shares (10%-20%) reported tightening standards on QM jumbo, non-QM non-jumbo, subprime, and QM non-jumbo, non-GSE eligible loans. In contrast, only modest net shares (5%-10%) of banks reported tightened standards on GSE-eligible and government loans. Meanwhile, significant net shares of banks reported weaker demand for HELOCs and all types of RRE loans except for subprime mortgage loans.
Personal lending. Significant net shares of banks reported tightened standards for credit card loans and other consumer loans, while a moderate net share reported having done so for auto loans. Consistent with tightened standards for credit card loans, banks also reported having tightened almost all queried terms on consumer loans.