April Senior Loan Officer Survey: Demand For U.S. Bank Loans Has Strengthened, But Standards Were Mixed
|Publication date: 02-May-2012 15:35:44 EST|
The April Senior Loan Officer Survey polled bank loan officers from 58 domestic banks and 23 U.S. branches and agencies of foreign banks, asking about loan demand, lending standards, and firms' exposure to Europe. Demand for bank loans increased across all loan categories in the first quarter with somewhat more modest improvements in supply conditions. Conversely, lending standards tightened for banks and nonfinancial firms with exposure to Europe. If the surge in domestic demand and improved lending conditions continue in coming quarters, we anticipate an acceleration of loan volumes in categories other than commercial and industrial (C&I) loans, which fueled total loan growth thus far. However, it is too early to make a definite conclusion. (For more details, see "U.S. Bank Balance Sheet Trends: Uneven Progress," published April 17, 2012, on RatingsDirect.)
Highlights of the April survey include:
- Banks, on net, eased lending standards for C&I, commercial real estate (CRE), and consumer loans but tightened standards for prime and nontraditional mortgages. Within consumer loans, auto loan standards eased for the fifth consecutive quarter.
- Net stronger demand for CRE loans, prime mortgages, auto loans, and C&I loans to large firms exceeded 30% for the quarter (see table 1).
- Four of 18 respondents reported somewhat tighter lending standards to nonfinancial firms with significant exposure to Europe, while the remaining banks noted little change. Domestic banks that lend to banks headquartered in Europe reported similar changes in standards.
- Banks were less likely than in 2006 to originate mortgages to borrowers apart from those with the strongest credit profiles.
- C&I loans is the only loan category growing in line with the increased demand, but we believe recent trends could spur growth in other loan categories.
|Net Tightening And Demand For All Loan Categories|
|--Net tightening of lending standards--||--Net stronger demand--|
|Commercial real estate||(13.8)||(1.8)||39.7||33.9|
|Source: Federal Reserve.|
Loan Supply Is Slowly Easing
Most domestic banks reported an easing in credit standards for C&I loans during the first quarter of 2012 but not enough for us to become more optimistic about underlying loan growth. Some domestic banks cited easier pricing terms for C&I loans to small and large firms resulting from greater competition. Foreign banks, which typically only lend to businesses, however, again reported a tightening of standards for C&I loans for the third consecutive quarter after several quarters of uninterrupted easing. We believe that this pullback could be largely a result of the turmoil and funding issues in their home countries.
The April survey indicated that lending standards for CRE and consumer loans eased modestly in the first quarter. Eight of the 58 surveyed banks reported lending standards easing somewhat during the quarter, while the remaining 50 banks reported more or less no change. For consumer loans, a net 12%, 18%, and 7% of banks eased lending standards for credit cards, auto loans, and other consumer loans, respectively. The easing of credit standards coincides with sequential quarter growth of 2.1% in banks' other consumer loan category for the first quarter, according to data from the Fed's H.8 survey. However, credit card balances were down 3% for the same time frame.
Within residential real estate, credit standards for prime borrowers and for home equity lines of credit (HELOCs) were little changed during the past three months (see chart 2). In our view, ongoing weakness in the housing market poses a barrier to sustainable loan growth.
Loan Demand Increased Across All Loan Categories
Bank lending officials reported stronger demand for all loan categories in the first quarter, including nontraditional mortgage loans (which includes adjustable-rate mortgages, interest-only mortgages, and "Alt-A products"), which saw demand drop the previous quarter. Demand for new or increased credit lines for C&I loans rose for the second consecutive quarter. A net 31% of large banks and 21.8% of small banks reported stronger demand. CRE loans also improved in the first quarter, with 39.7% of banks reporting stronger demand, building on the 33.9% from the previous report. Within residential real estate, bank lenders reported that net stronger demand for prime mortgage loans rose to 30.2% in first-quarter 2012 from 3.8% in fourth-quarter 2011. Net stronger demand for nontraditional loans similarly increased and reported its highest amount ever at 23.1%. Meanwhile, demand for HELOCs was mostly unchanged. All loan types in the consumer loan category reported net stronger demand in the first quarter, but net demand for auto loans was the highest at 35.3%.
European Exposures And Mortgages Continue To Worry Banks
Interestingly, the April Survey asked for the second consecutive quarter about lending to firms with European exposures. Most domestic banks reported tightening standards for loans to European banks and nonfinancial firms with substantial exposures to Europe, though the net tightening was less than banks reported in the January survey. This does not come as a surprise to us. However, some large domestic banks also reported an increase in business volumes from the ongoing deleveraging among their European competitors, which could partially offset weak domestic lending conditions.
In responding to another question, lending officers reported that they were less likely than in 2006 to originate residential mortgages to borrowers other than those with the strongest credit. As reasons for the tighter lending standards, banks cited the increased difficulty for borrowers to obtain mortgage coverage insurance and the higher risk of putbacks of delinquent mortgages by the government-sponsored enterprises. Nevertheless, 26 of the surveyed banks said they planned to increase residential real estate (RRE) holdings in the next year, whereas only seven banks said they would reduce RRE holdings. Sixteen of the banks reported that they were actively soliciting applications for the revised Home Affordable Refinance Program, or HARP 2.0.
C&I Cannot Do The Heavy Lifting Alone
Growth in loan volumes, according to the Fed's monthly H.8 report, remained strongest in the C&I loan category, which increased 11% on average on an annualized basis in the first quarter of 2012 and, as of April 18, were 13.4% above what they were a year ago. The April survey indicates that demand for C&I loans to all size firms has not been this high since early 2005 (see chart 3). However, we believe that the corporate sector, which accounts for less than one-fifth of total U.S. banks loans, cannot revive lending alone, especially if some of the key sources of the boost--such as refinancing activity, trade finance, and tax-induced capital expenditure--were to lose steam. Instead, a systemwide recovery depends on the recovery in other major segments, notably real estate, which accounts for more than half of all loans (see chart 4). We believe the continued easing of lending standards and improving demand in future surveys will be instrumental to the recovery taking hold.
- U.S. Banks' Credit Card master trusts: Underlying Progress Continued In March, April 25, 2012
- U.S. Bank Balance Sheet Trends: Uneven Progress, April 17, 2012
- U.S. Banks' Earnings End 2011 With Credit Leverage Lift, March 1, 2012
- U.S. Banks' Fourth-Quarter Loan Quality Improved, But Real Estate Lagged, March 1, 2012
- Higher Capital Needs Through 2019 Could Stunt U.S. Bank Loan Growth, Feb. 7, 2012
- U.S. Bank Loans: Battling Back From The Recession As Growth Remains Weak, Feb. 7, 2012
- The January Senior Loan Officer Survey Points To More Of The Same For U.S. Banks, Jan. 31, 2012
|Primary Credit Analyst:||Rodrigo Quintanilla, New York (1) 212-438-3090;|
|Secondary Contacts:||Devi Aurora, New York (1) 212-438-3055;|
|Michael Caggiano, New York (1) 212-438-4734;|
No content (including ratings, credit-related analyses and data, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of S&P. The Content shall not be used for any unlawful or unauthorized purposes. S&P, its affiliates, and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions, regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities or to make any investment decisions. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P’s opinions and analyses do not address the suitability of any security. S&P does not act as a fiduciary or an investment advisor. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.
Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to: email@example.com.