Fed Survey: Banks Tightened CRE Loan Standards Over Past Twelve Months

If, during the past twelve months, you’ve gone to the capital markets and suspected that banks aren’t playing ball quite as much as before, a key survey of loan officers says you’d be right.

This week, the Federal Reserve Bank released its Senior Loan Officer Opinion Survey. The project looks at changes to the terms of commercial loans, including loans for commercial real estate. 71 domestic banks and 23 branches of foreign banks were heard from in this year’s survey.

CRE loan classes in the survey included construction and land development loans, loans secured by nonfarm nonresidential properties, and loans secured by multifamily residential properties.

The verdict: there’s been a change, and it goes against the CRE borrower. Even though demand for CRE borrowing has strengthened, commercial real estate lending standards are tighter than those reported in the July 2015 survey.  The tightening has been for all of the four quarters that ended in June of this year.

From the report:

Regarding loans to businesses, the July survey results indicated that, on balance, banks tightened their standards on commercial and industrial (C&I) and commercial real estate (CRE) loans over the second quarter of 2016.3  The survey results indicated that demand for C&I loans was little changed, while demand for CRE loans had strengthened during the second quarter on net.

[…]

Responses to a set of special annual questions on the approximate levels of lending standards suggested that banks’ lending standards for all categories of C&I loans are currently easier than the midpoints of the ranges that have prevailed since 2005 (explained more fully below), except for syndicated loans to below-investment-grade firms. However, banks also generally indicated that standards on all types of CRE loans are currently tighter than the midpoints of their respective ranges.  Compared with the July 2015 [survey], fewer banks reported easier levels of standards and more banks reported tighter levels of standards for all business loan types.

Download the entire Federal Reserve survey PDF after the link.

 

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