WASHINGTON -- Large and midsize businesses continued to feel the squeeze over the last three months from nearly 55% of domestic banks, according to the Federal Reserve Board's April 2008 senior loan officer opinion survey on bank lending practices.
The data is based on responses from 56 domestic banks and 21 United States-based branches and agencies of foreign banks. The 55% increase is up from the nearly 30% reported in the Fed's January survey. Fifty percent of domestic banks reported tightening lending standards to smaller firms since January.
The vast majority of large domestic banks that reported stronger loan demand from large and middle-market firms indicated that customer borrowing shifted to their banks from other bank or nonbank sources, as these other sources became less attractive for such borrowers, the survey showed. This is in contrast to some credit union and CUSO executives who have recently indicated that small business owners have come to them for financing needs after being turned down by banks.
The survey's data also revealed that substantial majorities of domestic and foreign institutions experienced weaker loan demand over the past three months due to a decrease in customers' needs to finance investment in plant and equipment. While domestic banks cited lower demand to finance inventories, foreign banks experienced a decrease in customer's needs for merger and acquisition financing.
Regarding future business, about 20% of large domestic banks, on net, reported an increase in the number of inquiries from potential business borrowers over the past three months. In contrast, a fraction of small domestic banks and foreign institutions indicated that inquiries from potential business borrowers had declined during the survey period.
About 70% of banks, up from 45% in the January survey, said that they had increased spreads of loan rates over their cost of funds.
Commercial real estate loans continued to catch just as much scrutiny in April as in January. Nearly 80% of domestic banks and 55% of foreign banks reported tightening their lending standards on commercial real estate loans over the past three months. Concerning loan demand, 35% of domestic banks and 45% of foreign institutions reported weaker demand, on net, for commercial real estate loans over the past three months.
--msamaad@cutimes.com
