Fewer U.S. banks reported tightening standards on business loans in the fourth quarter, with only a handful reporting easing standards.

The Federal Reserve’s quarterly survey of senior loan officers found that half as many banks on net reported tightening standards on commercial and industrial loans for firms of all sizes in the fourth quarter compared with the third quarter, while the share of banks that eased standards quadrupled for large and midsize businesses.

Roughly seven in 10 banks kept their C&I loan standards unchanged, with the handful of banks who eased standards citing an improving economic outlook as the most important reason.

The previous loan officer survey, in October 2020, had found that banks had tightened standards for both C&I loans and commercial real estate loans.

Roughly seven in 10 banks kept their C&I loan standards unchanged, with the handful of banks who eased standards citing an improving economic outlook as the most important reason.

But this latest report found that commercial real estate (CRE) lending stabilized after the economic shock of the first half of the year. Roughly 7 in 10 banks kept standards unchanged for construction and land development loans and loans secured by nonfarm nonresidential properties, while almost no banks reported easing standards for CRE loans.

A moderate net share of banks reported weaker demand for C&I loans to firms of all sizes, with significant net shares of banks citing a decrease in customers’ merger or acquisition financing needs as an important reason.

A significant net share of banks reported weaker demand for CRE loans secured by nonfarm nonresidential properties, and a moderate net share of banks reported the same for construction and land development loans.

On the consumer side, most banks kept standards unchanged for mortgage loans in the fourth quarter while demand eased substantially, with just 6.4% of banks on net reporting stronger demand for conforming loans — down from 65% in the third quarter. The weaker demand came after the Federal Housing Finance Agency imposed a surcharge on government-sponsored enterprise (GSE) refinances.

On net, 12.8% of banks eased standards on credit card loans while modest net shares of banks eased standards for auto loans and for other consumer loans.

“Credit card balances have been declining at banks and credit unions since last spring and auto loans have been growing at a snail’s pace. In November, credit union auto loan portfolios were just 1.3% higher than a year earlier,” according to Credit Union Times.

For 2021, most banks expect stronger demand for consumer loans. But a strong majority expect consumer loan performance to deteriorate, and a smaller number of banks expect performance to worsen for residential mortgages and home equity lines of credit.

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