May 19, 2025 - The Federal Reserve recently published its April 2025 Senior Loan Officer Opinion Survey (SLOOS) on Bank Lending Practices. Responses were received from 70 domestic banks and 19 U.S. branches and agencies of foreign banks. The survey covers commercial and industrial (C&I), consumer and real estate loans, but we will focus on the C&I results as they are most relevant to our market. The survey closed on April 11, which suggests that in some cases, responses may in part reflect post-Liberation Day shifts in banks and borrowers’ credit decisions.
In 1Q25, a significant share of banks reported weaker demand for C&I loans from borrowers of all sizes, and a moderate share of banks reported fewer inquiries from potential borrowers about new credit line availability and terms and upsizes to existing facilities. However, a modest share of foreign banks noted that C&I loan demand was stronger in 1Q25. The April survey results represent a shift from the 4Q24 results, which showed higher demand for C&I loans for middle-market and large borrowers, and is more in line with the 3Q24 trend.
The weaker demand was largely attributed to a pullback in capital expenditure among borrowers and lackluster M&A activity.
A moderate share of banks reported tighter standards on C&I loans for borrowers of all sizes. Stricter terms included smaller credit line sizes, higher risk premiums, stronger covenants and collateral requirements, and interest rate floors. A modest share of banks relaxed spreads on loans to small borrowers but did not change loan spreads for middle-market and large borrowers. The tightening trend was reported also by foreign banks. In 4Q24, banks reported tighter lending standards overall.
Tighter standards were attributed to economic uncertainty, concerns about the impact of legislative changes, supervisory actions, changes in accounting standards, industry-specific issues, and reductions in banks’ risk appetite.
It is worth noting that in the January survey, banks forecast C&I demand to increase in 2025 across all borrowers. We expect the July survey to be a better barometer, as it will more fully capture the impact and potential resolution of ongoing economic policy uncertainty.
