Business, home loan demand falls as banks tighten standards on credit card, auto loans

Banks tightened standards on credit card and auto loans because of a more uncertain economic outlook, while demand for business and home loans fell in the third quarter of 2017, according to a survey of domestic and foreign banks.

On Monday (Nov. 6), the Board of Governors of the Federal Reserve System released the Senior Loan Officer Opinion Survey on Bank Lending Practices for the third quarter of 2017. The survey included responses from 72 domestic banks and 23 U.S. branches and agencies of foreign banks.

For businesses loans, banks eased their standards and terms on commercial and industrial loans as demand declined for those loans. Banks eased standards because of “aggressive competition” from other banks and nonbank lenders. Standards on most commercial real estate loans remained unchanged as demand decreased for those loans.

For homes loans, banks eased their standards or they remained unchanged for residential real estate loans as demand fell for the loans. Banks tightened standards and terms on credit card and auto loans, but demand remained unchanged. Banks tightened standards or terms on credit card and auto loans because of a “less favorable or more uncertain economic outlook, a deterioration or expected deterioration in the quality of their existing loan portfolio and a reduced tolerance for risk,” according to the survey. Banks also cited “less favorable or more uncertain expectations regarding collateral values” as another reason for tightening standards and terms for auto loans.

“Significant shares of banks indicated that lower or more uncertain resale value for auto loans in the secondary market was an important reason for tightening standards or terms on auto loans to prime and subprime borrowers over this year,” according to the survey. “No more than 30% of banks listed a deterioration in their bank’s current or expected capital or liquidity position or less aggressive competition from other banks or nonbank lenders as important reasons for tightening standards or terms on credit card and auto loans to prime and subprime borrowers.”

Demand rose for credit cards and auto loans because customers’ confidence and their ability to manage their debt have improved. Banks that reported demand fell for credit cards and auto loans attributed the decline to rising interest rates and customers shifted their borrowing from their bank to another bank or a nonbank source.

Click here to read the survey.