Credit

Banks Continue Tighter CRE Lending Policies

The tighter lending standards reflect in part a less favorable or more uncertain outlook for commercial real estate prices.
Matthew HellerMay 10, 2017
Banks Continue Tighter CRE Lending Policies

Banks tightened lending standards for commercial real estate loans in the first quarter, reflecting in part a less favorable or more uncertain outlook for CRE property prices, according to the Federal Reserve.

The Fed’s April survey of senior loan officers found a net 32.4% said they tightened standards somewhat on construction and land development loans, while 36.1% said they tightened somewhat or considerably on multifamily loans. On net, 12.5% said they tightened standards for loans secured by nonfarm nonresidential properties.

It was the sixth consecutive quarter to show a tightening of CRE lending standards.

Loans, Banks, CRE LendingBanks that tightened their credit policies cited the less favorable or more uncertain outlook for CRE property prices, vacancy rates or other fundamentals on CRE properties, and capitalization rates, as well as reduced tolerance for risk.

“Significant net shares of banks also reported less aggressive competition from other banks or nonbank financial institutions and increased concerns about the effects of regulatory changes or supervisory actions as important reasons for tightening CRE credit policies,” the Fed said.

For consumer lending, banks reported tightening standards on and weaker demand for auto loans and easing standards on and weaker demand for credit card loans. On balance, banks tightened most terms on auto loans, with a moderate net fraction widening the spread of loan rates over their cost of funds and reducing the extent to which loans are granted to some customers that do not meet credit-scoring thresholds.

Commercial and industrial lending was mostly unchanged, though a few firms reported slightly easing their standards for large- and middle-market firms (2.8%) and for small firms with less than $50 million (2.9%). Banks that reported easing cited more aggressive competition from other banks or nonbanks and a more favorable economic outlook.

On the residential lending side, banks reported that both loan demand and loan standards remained mostly unchanged, though a net 11.3% eased standards somewhat or significantly for GSE-eligible mortgages.