WASHINGTON (MNI) – The following are excerpts from the January 2012
Senior Loan Officer Opinion Survey on Bank Lending Practices, published
Monday:

Overall, in the January survey, domestic banks reported that their
lending standards had changed little and that they had experienced
somewhat stronger loan demand, on net, over the past three months.
Foreign respondents, which mainly lend to businesses, reported a net
tightening of their lending standards while loan demand was about
unchanged.

Regarding business loans, domestic banks reported, on balance,
little change in standards on commercial and industrial (C&I) loans but
a continued easing of pricing terms on such loans during the fourth
quarter. Domestic banks reportedly experienced stronger demand for C&I
loans from firms of all sizes on net. The net fraction of banks
reporting increased demand from small firms rose to its highest level
since 2005.3 Foreign respondents reported having tightened both
standards and terms on C&I loans, on net, and they indicated that loan
demand had been about unchanged over the past three months. Domestic
banks continued to report little change in their standards for CRE
loans, but modest net fractions had eased some loan terms over the past
year. Moderate net fractions of domestic banks reported that demand for
CRE loans had strengthened in the fourth quarter. Modest net fractions
of foreign respondents reported having tightened standards for CRE
loans. Foreign respondents also reported, on balance, little change in
demand for such loans.

On the household side, lending standards and demand for loans to
purchase residential real estate were reportedly little changed over the
fourth quarter on net. Standards on home equity lines of credit (HELOCs)
were about unchanged, while demand for such loans weakened on balance.
Moderate net fractions of banks reported that they had eased standards
on all types of consumer loans over the past three months, and some
banks also eased terms on auto loans. Demand for credit card and auto
loans reportedly had increased somewhat, while demand for other types of
consumer loans was about unchanged.

—

(Respondent banks received the survey on or after December 21, 2011, and
responses were due by January 10, 2012.)

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Questions on commercial and industrial lending.

Domestic banks reported that their credit standards on C&I loans to
firms of all sizes were little changed over the fourth quarter on net.
In contrast, U.S. branches and agencies of foreign banks reportedly
tightened their standards on C&I loans for the second consecutive
quarter on balance.

A large net fraction of domestic banks reportedly eased pricing
terms on C&I loans to firms of all sizes over the past three months. A
moderate net fraction of banks also indicated a reduction in their use
of interest rate floors. Domestic banks that reported having eased terms
on C&I loans unanimously cited increased competition from other banks
and nonbank lenders as a reason for having done so. The handful of banks
that reported having tightened standards or at least one C&I loan term
primarily cited a less favorable or more uncertain economic outlook and
increased concerns about legislative, supervisory, or accounting
policies.

Meanwhile, foreign survey respondents reported that they continued
to tighten terms on C&I loans on net. Moderate net fractions of foreign
respondents reduced the maximum size of credit lines, increased the cost
of such credit lines, and reduced the maximum maturity of C&I loans.
Foreign respondents that reported having tightened their standards or
terms on C&I loans unanimously cited a less favorable or more uncertain
economic outlook, and 80 percent cited a deterioration in their current
or expected liquidity position.

Reports from domestic banks of stronger demand for C&I loans
outnumbered reports of weaker demand, in contrast to the net weakening
of loan demand reported in the previous survey. About 15 percent of
domestic banks, on net, reported increased demand for C&I loans from
small firms, the largest net percentage that has been reported since
2005. Similarly, domestic banks reported a net increase in the number of
inquiries from potential business borrowers regarding new or increased
credit lines. Domestic banks that saw weaker demand for C&I loans and
those that saw stronger demand both cited changes in customers funding
needs related to inventories, accounts receivable, and mergers and
acquisitions as important factors underlying the change in demand. Of
domestic banks reporting weaker loan demand, about 85 percent cited
customers reduced funding needs for capital investment. Foreign
respondents experienced little change, on net, in demand for C&I loans.

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Special questions on banks outlook for asset quality in 2012.

The January survey contained a set of special questions that asked
banks about their outlook for delinquencies and charge-offs across major
loan categories in the current year, assuming that economic activity
progresses in line with consensus forecasts. These questions have been
asked once each year for the past six years. Overall, between 15 and 60
percent of domestic banks, on net, expected improvements in delinquency
and chargeoff rates during 2012 in the major loan categories included in
the survey. Expectations for improvement in 2012 were less widespread
than they were a year ago, but last years expectations were the highest
in the history of the question.

In this year’s survey, banks were least likely to forecast
improvement in the quality of consumer loans, likely in part because
measures of consumer loan quality are already quite positive. About 20
percent of banks, on net, expected improvement in credit card loans, and
a similar fraction projected improvement in other consumer loans.
Expectations for improvements this year in the asset quality of prime
residential real estate loans and for HELOCs stayed roughly the same as
last year, with a bit more than one-third of the respondents
anticipating an improvement in the quality of such loans. More survey
respondents expect the asset quality of nontraditional residential real
estate loans to improve in 2012 than did last year. About 55 percent of
banks, on net, anticipate that delinquency and charge-off rates on such
nontraditional loans will decline this year compared with about 20
percent of the respondents to last year’s survey.

** Market News International Washington Bureau: 202-371-2121 **

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