More banks ease business loan terms, but few do for home mortgages

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The Federal Reserve’s latest survey of commercial bank senior loan officers shows a continuing trend toward easier lending terms for business borrowers, another sign of improving conditions in the financial system.

More banks also reported a greater willingness to make consumer installment loans. But relatively few were easing standards on prime home mortgage loans -- which may be one reason why demand for mortgages remains weak.

The Fed, which surveys bank loan officers each quarter, said its April survey showed that “On net, bank lending standards and terms generally had eased somewhat further during the first quarter of this year, and that the demand for commercial and industrial loans and for commercial mortgages increased.”

Of 55 banks surveyed last month, 16.4% said they had “eased somewhat” on lending terms to large and mid-size companies, up from the 12.3% that said they had eased in the Fed’s January survey.

The rest of the banks surveyed last month said they kept lending standards to large and mid-size businesses unchanged. None reported tightening standards.

Lending terms to smaller companies were eased by 13.5% of banks in the latest survey, while the rest held loan standards steady for those borrowers.

The Fed’s program of buying $600 billion in U.S. Treasury bonds through June 30 is aimed at getting more money into the financial system and from there into the real economy, including via bank lending.

Some banks that eased standards on business loans cited a more favorable outlook for the economy, but the majority said they were making loans easier to get because of market forces -- meaning “increased competition from other banks and nonbank lenders,” the Fed said.

As for loans to consumers, “Several large banks eased lending policies on credit card and auto loans, and the net fraction of banks that reported having become more willing to make consumer installment loans rose to its highest level since the first half of 1994,” the Fed said.

But just 3.8% of banks reported easing terms for prime home mortgages, offset by the same percentage that “tightened somewhat” on mortgage standards. The rest of the lenders, 92.5%, kept standards the same as in January.

About 45% of banks reported that prime mortgage demand was “moderately weaker” in the last three months, even adjusting for seasonal variations. Just 9.4% said demand was “moderately stronger.”

Continued weakness in the housing market has weighed on the economy this year. Home prices in many markets have resumed sliding in recent months as demand has remained tepid.

-- Tom Petruno

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