2020 Senior Loan Officer Opinion Survey on Bank Lending Practices on Bank Lending Practices – Summary

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The Federal Reserve released their October 2020 supplementary Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) addressed changes in the standards and terms on, and demand for bank loan to businesses and households over the past three months, in the third quarter.

C&I loans to both large and middle-market firms and to small firms.

Banks have reported in the third quarter that they have tightened standards for C&I loans to both large and middle-market firms and to small firms. At the same time, banks tightened all lending terms across firms of all sizes. Banks have increased requirements, loan covenants, premiums charged on riskier loans, and the use of interest rate floors for both loans to small firms and loans to large and middle-market firms.

Foreign banks tightened standards for C&I loans. Foreign banks reported having tightened loan covenants and collateralization requirements, increased premiums charged over riskier loans, and reduced the maximum maturity of loans or credit lines. Remaining terms were tightened by modest or moderate net shares of domestic and foreign banks.

  • Uncertain Economic Outlook

The effects of tightening lending standards have led to more uncertainty in the economic outlook, worsening of industry specific problems, and the banks reduced tolerance for risk. Banks also mentioned deterioration in their bank’s current or expected capital position; less aggressive competition from other banks or nonbank lenders; and increased concerns about the effects of legislative changes, supervisory actions, or changes in accounting standards as important reasons for tightening lending standards and terms.

  • Weaker Demand for C&I loans

Demand for C&I loans over the third quarter, banks reported weaker demand for C&I loans to firms of all sizes. In addition, banks stated that the number of inquiries from potential borrowers decreased over the third quarter. Foreign banks conveyed that demand for C&I loans weakened, and the number of inquiries from potential borrowers decreased.

Commercial Lending

Domestic banks tightened standards for construction and land development loans and loans secured by nonfarm nonresidential properties, while banks tightened standards for loans secured by multifamily residential properties. Domestic banks reported weaker demand for all three CRE loan categories during this period. Foreign banks tightened standards on CRE loans, and reported weaker demand for such loans.


Special Questions on Banks’ Forbearance Policies

The October 2020 survey included a set of special questions that asked respondents about forbearance policies at their banks. Specifically, respondents were asked to report the following:

  1. The fraction of loans currently in forbearance.
  2. How frequently forbearances incorporate various loan terms.
  3. How important various factors are in determining the outcome of a forbearance request.

Most banks indicated that the fraction of loans in forbearance did not exceed 5 percent in the third quarter.

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