The most anticipated senior loan officer opinion survey in recent memory showed the share of US banks tightening C&I loan standards to large and middle-market firms rose to levels only witnessed during recessions.
I don’t know if we’re supposed to shudder at that or sell stocks or buy bonds or what, exactly.
Headed into this week, there was all manner of speculation about what the “SLOOS” would say. The survey was supposed to reveal something profound about what many observers insist is a burgeoning credit crunch destined to amplify the economic drag from 500bps of Fed hikes.
I’ll leave it to readers to decide if the survey lived up to the hype. Certainly, the results suggested banks continued to adopt a cautious approach in light of macro concerns and recent developments at regional lenders.
All CRE loan categories were subjected to tighter standards and saw weaker demand. Mid-size banks were the most stringent.
“The most frequently reported changes pertain[ed] to wider spreads of loan rates over banks’ cost of funds and lower loan-to-value ratios,” the Fed said. So, exactly what you’d expect given everything that’s been written about the dour outlook for CRE.
Notably, the net percentage of banks tightening standards for CRE loans tied to multifamily construction hit a record, at 64.5%.
On the consumer side, the picture was mixed. A bigger net share of large banks tightened standards for credit cards, and “almost all queried terms on credit card loans” were tightened. The same was true for auto and other consumer loans.
Demand was broadly weak, and particularly for loans to businesses. “Major net shares of banks reported weaker demand for [C&I] loans from firms of all sizes,” the Fed noted. The same was true in CRE: Tighter standards, weaker demand.
The visual suggests a recession. I’m not sure there’s much utility in dancing around the point. You could argue the most important takeaway from the survey is the collapse in demand, not the incremental tightening.
“With the Conference Board measure of US CEO confidence and the NFIB small business optimism survey both at recession levels, these borrowing intention numbers highlight the defensive mindset in America right now that points to less capex and hiring in coming months,” ING’s James Knightley remarked.
Banks indicated that standards will either stay tight or get tighter going forward for C&I, CRE, nonconforming jumbo mortgages and “all consumer loan categories.”
In explaining those expectations, large banks cited anticipated “deterioration in credit quality, collateral values and reduction in risk tolerance.” In this vintage of the survey, the Fed distinguished between the largest banks and mid-sized lenders, with the latter defined as those with between $50 billion and $250 billion in assets.
Mid-sized and “other” banks shared the worries of the country’s largest lenders, but listed additional concerns too. “Other” banks cited funding costs, liquidity position and deposit outflows. Mid-sized respondents cited the same misgivings and impediments, plus a few others, including “increased concerns about the effects of future legislative changes [and] supervisory actions.”