May 11, 2022
C-Suite Wednesday – Bankers Report Loan Terms and Credit Standards are Unchanged
“Regarding loans to businesses, respondents to the survey reported, on balance, unchanged standards for commercial and industrial (C&I) loans to firms of all sizes, after having eased them over the previous four quarters, while demand strengthened over the first quarter. Meanwhile, banks reported unchanged standards and demand for most commercial real estate (CRE) loan categories except for those secured by multifamily residential properties, for which they eased standards and demand strengthened on net,” reads the Federal Reserve’s April 2022 Senior Loan Officer Opinion Survey on Bank Lending Practices.
Over the past three months, a majority of the respondents stated that their bank has not changed their credit standards for approving applications for C&I loans or credit lines. 86.4% of banks did not change the standards for large and middle-market firms (annual sales of $50 million or more), and 87.1% of banks did not change credit standards for small firms (annual sales of less than $50 million). Demand for C&I loans was about 60% unchanged for all firm sizes, but 29% and 24.6% of bankers reported it was moderately stronger for small firms and large/middle-market firms respectively.
The survey also reviewed how the terms of C&I loans and credit lines have changed over the last three months:
• Maximum Size of Credit Lines: For large and middle-market firms, over three-quarters of bankers reported that they were basically unchanged, and 20.3% stated that their terms eased somewhat. For smaller firms, 85% of bankers reported that the terms were unchanged, and 13.3% said that the terms eased somewhat.
• Maximum Maturity of Loans or Credit Lines: 90.3% of respondents stated that the terms for middle and large-market firms remained virtually unchanged. The same sentiment was shared for small firms with 89.8% stating terms were unchanged.
• Cost of Credit Lines: 91.7% of bankers stated terms were basically unchanged for small firms, while 81% said the same for large and middle-market firms. 12.7% stated the terms eased somewhat for large and middle-market firms.
• Spread of Loan Rates over your Bank’s Cost of Funds: About two-thirds of respondents reported that the spreads were unchanged for large and middle-market firms, and almost 22% said they were seeing narrower spreads of loan rates. For small firms, respondents reported 73.3% and 18.3% respectively for unchanged and narrower spreads.
• Premiums Charged on Riskier Loans: Around 80% of bankers said that the premiums remained basically unchanged for large and middle-market firms, but 16% stated they tightened the premiums. 85% said that premiums remained unchanged for small firms, while 6.7% eased and 8.3% tightened premiums.
• Collateralization Requirements: 95% reported the requirements being unchanged for small firms, and 93.4% said requirements were unchanged for middle and large-market firms.
• Use of Interest Rate Floors: 73% of bankers said this remained unchanged for large and middle-market firms, while 16% reported using interest rate floors less often. This was nearly the same for small market firms.