February 02, 2010 |
|WASHINGTON (MarketWatch) -- Banks in the United States aren't tightening credit standards as much as they were a year or two ago, but they haven't yet loosened the flow of credit to consumers or businesses, the Federal Reserve reported Monday.|
The net percentage of banks that were tightening standards was close to zero but positive for most types of loans, the Fed said in its quarterly survey of senior loan officers at 55 U.S. banks and 23 foreign banks doing business in the country.
On net, lending standards have gotten increasingly tighter for nine consecutive quarters. Banks tighten standards in several ways: raising thresholds for credit scores, reducing credit limits, shortening maturities, charging higher interest payments and fees, requiring higher minimum payments, or requiring greater collateral.
Most banks that tightened standards expressed concerns about the economy. Other reasons for tightening standards included reduced liquidity in secondary markets, the banks' own need for capital, and reduced appetite for risk.
In the January survey, most banks reported that demand for most types of loans is still weakening further, the Fed reported.
Compared with last year, fewer banks expect loan losses to accelerate over the next year. Banks generally expect asset quality to stabilize this year. But they do expect a worsening in the quality of commercial real estate loans, prime residential loans, and home-equity lines of credit.
Credit for businesses remained tight, especially for commercial real estate loans and for commercial and industrial loans to small businesses.
Increased lending to small businesses is seen by Washington as an essential ingredient to a sustained recovery and job growth.
For the first time in nearly three years, a greater number of banks were willing to make installment loans to consumers. However, banks were still tightening standards for mortgage loans and for credit card loans to consumers.
For commercial and industrial loans, more than 95% of the banks said credit standards hadn't changed compared three months ago. A few eased standards for larger and medium-sized firms; and few tightened standards for small customers.
About a third of banks said demand for C&I loans from both kinds of customers had weakened further. About 10% reported higher demand from big firms, and about 4% said demand from small firms increased.
For commercial real estate loans, about 27% of banks tightened standards. The rest kept standards steady. About 25% of banks said demand for commercial real estate loans weakened, while 4% said demand increased.
For prime residential mortgage loans, about 17% tightened standards further, while 4% eased standards. Demand for prime mortgages increased at 22% of banks, and fell at 29%.
For non-traditional mortgages (such as Alt-A), about 30% of banks tightened standards and none eased them. Demand for non-traditional loans fell at 35% of banks, and increased at none.
The number of banks offering subprime loans was too low to report.
About 12% of banks said they were somewhat more willing to make consumer loans than they had been three months earlier, while 2% were much less willing.
For credit cards, lending standards were tighter at 6% of banks and looser at 3%. More than a third of banks said they had reduced credit limits for new credit card customers.
Demand for consumer loans dropped at about 41% of banks, and increased at 8%.
By Rex Nutting, MarketWatch