May 7, 2024 - The Fed published its April 2024 Senior Loan Officer Opinion (SLOO) Survey on Bank Lending Practices yesterday that suggested most banks continue to take a conservative approach to lending and borrowers are seeking less credit. Responses were received from 66 domestic banks and 20 U.S. branches and agencies of foreign banks.

Banks reported tighter standards and weaker demand for commercial and industrial (C&I) loans in 1Q24, citing macro and industry-specific concerns, legislative and supervisory actions impact, deteriorating liquidity positions, less competition from other banks or nonbanks and decreased secondary liquidity for C&I loans. Of the respondents, large banks (total domestic assets of $100 billion or more) reported that they did not change C&I lending standards and most C&I loan terms while a modest share of foreign banks reported tighter C&I lending standards and terms.

Respondents also reported tighter standards for all types of commercial real estate (CRE) loans due to uncertainty around CRE market rents, vacancies, and property values. Again, this was seen less in large banks but was experienced in a significant share of foreign banks. Weaker demand was driven by higher interest rates, fewer property acquisitions, and rental demand uncertainty. Across CRE loan categories, respondents indicated that the most reported change in CRE terms was interest rates.

Lending standards tightened across some categories of residential real estate (RRE) loans while demand weakened for all RRE loans. Large banks reported easing of standards for most RRE loans. The survey also showed tighter standards and weaker demand for home equity lines of credit (HELOCs) and consumer loans, including for credit cards and autos.

Though the trend has been toward tightening, the share of banks reporting tighter lending standards in 1Q declined from 4Q23. 

Relatedly, BofA noted in a research report published today that loan exposure decreased by about $17 billion across the top 100 U.S. banks quarter-over-quarter. (Total assets for this group range from $19 billion to $3.5 trillion as of 1Q24.) This figure partly comprises a $10.8 billion increase in exposure to CRE/Farm/Multifamily loans (with roughly $4.4 billion due to the acquisition by of Luther Burbank Corporation by Washington Federal Bank), a $4.2 billion increase in exposure to C&I loans and $34.7 billion decrease in exposure to credit card loans.

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