Tighter standards, weaker demand for commercial loans in Q2 revealed

The US central bank released the July 2023 Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) that “addressed changes in the standards and terms on, and demand for, bank loans to businesses and households over the past three months, which generally correspond to the second quarter of 2023.”

The survey showed, on balance, tighter standards and weaker demand for commercial and industrial loans to firms of all sizes over the second quarter. Regarding the outlook, banks reported that they expect to tighten standards on all loan categories.

Key Quotes

“Regarding loans to businesses, survey respondents reported, on balance, tighter standards and weaker demand for commercial and industrial (C&I) loans to firms of all sizes over the second quarter. Meanwhile, banks reported tighter standards and weaker demand for all commercial real estate (CRE) loan categories.”

“For loans to households, banks reported that lending standards tightened across all categories of residential real estate (RRE) loans, especially for RRE loans other than government-sponsored enterprise (GSE)-eligible and government loans. Meanwhile, demand weakened for all RRE loan categories.”

“Standards tightened for all consumer loan categories; demand weakened for auto and other consumer loans, while it remained basically unchanged for credit card loans.”

“Banks reported that, on balance, levels of standards are currently on the tighter end of the range for all loan categories. Compared with the July 2022 survey, banks reported tighter levels of standards in every loan category.!

“Regarding banks’ outlook for the second half of 2023, banks reported expecting to further tighten standards on all loan categories.”