Bankers Expect Higher Loan Demand and Deteriorating Credit Quality in 2024

February 7, 2024

Delaney Sexton
Contributing Editor

Fed Says Bankers See Higher Small Business Loan Demand and Increased Delinquencies in 2024

Many bankers predict a decline in credit quality for commercial loans to small businesses in 2024. According to the Federal Reserve, small businesses are defined as those with annual sales below $50 million. Looking ahead, banks anticipate maintaining lending standards for C&I loans, while tightening standards further for CRE lending. Additionally, bankers foresee increased loan demand across all types due to an expected decrease in interest rates.

The Federal Reserve’s report reveals that bankers faced tighter credit standards and decreased loan demand for C&I and CRE loans in Q4 of 2023. While banks have consistently reported tighter standards and reduced demand over several quarters, the number of banks reporting this trend has decreased since Q3.

Banks are tightening credit standards and terms for C&I loans, particularly noticeable among large banks. The most common areas of tightening include premiums on riskier loans, loan rate spreads, credit line costs, and collateralization requirements. Additionally, most banks reported weaker demand for C&I loans.

Regarding commercial real estate lending, banks are tightening credit standards, especially smaller and medium-sized banks, with lower demand reported for CRE loans.

Senior Loan Officer Opinion Survey on Bank Lending Practices – January 2024

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