Banks Continued to Tighten Credit Standards and Terms in the First Quarter

May 8, 2024

Delaney Sexton
Contributing Editor

Banks Continued to Tighten Credit Standards and Terms in the First Quarter

The April 2024 Senior Loan Officer Opinion Survey released this week found that banks tended to have tighter standards and weaker demand for commercial and industrial (C&I) loans to businesses of all sizes in the first quarter. This trend has been consistent since 2022, but there is a minor improvement in the number of banks reporting tightened standards and weaker demand.

During the first quarter, banks reported tightening standards and terms on C&I loans to businesses of all sizes. Generally, large banks were more likely to leave standards and terms unchanged, while most banks of other sizes did tighten C&I lending standards and terms.

The reason for banks’ stricter lending was most commonly attributed to a less favorable or more uncertain economic outlook. Following that, banks reported reduced risk tolerance and worsening industry-specific problems as key reasons for tightening standards and terms. A significant portion of banks also claimed that deterioration in the bank’s current or expected liquidity position, less aggressive competition from other banks or nonbank lenders, and decreased liquidity in the secondary market for C&I loans was a cause.

For the first quarter, banks reported weaker C&I demand from businesses of all sizes. Also, fewer potential borrowers were inquiring about the availability and terms of new credit lines or increases in existing lines. The most cited reason for the decline in demand was decreased customer financing needs for merger or acquisition and inventory. Another reason was decreased customer investment in plants or equipment.

Source:
April 2024 Senior Loan Officer Opinion Survey on Bank Lending Practices