WASHINGTON — As a result of more aggressive competition from other banks or nonbank lenders, some banks have recently reported easing their lending standards or terms as a result of more aggressive competition from other banks or nonbank lenders.

That's according to the July 2007 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve Board, which collected data from the 53 banks that account for 67% of all commercial and industrial loans as of March 31. Institutions that moved to a more stringent lending posture said they did so because of a “less favorable” or “more uncertain” economic outlook, a reduced tolerance for risk and decreased liquidity in the secondary market for C&I loans.

Roughly one-fifth of those surveyed said they had experienced weaker demand for C&I loans over the past three months from large and middle-market businesses for reasons ranging from borrowers' decreased need to finance inventories or investment in plant or equipment, or a shifting towards other bank or nonbank credit sources, the survey's data found. Another one-fifth of domestic banks report stronger demand for C&I loans due to greater financing needs from borrowers for merger and acquisition activity.

Lending standards for commercial real estate loans were reportedly tightened further over the past three months: About one-fourth of domestic institutions–a slightly smaller net fraction than in the previous survey–and about 40 percent of foreign institutions indicated that they had tightened lending standards on commercial real estate loans in the July survey. Regarding demand, approximately one-fourth of domestic and foreign institutions reported that demand for commercial real estate loans had weakened over the past three months.

Smaller net fractions reported that they had reduced the costs of credit lines and eased loan covenants to large and middle-market firms, and had reduced the costs of credit lines and lowered premiums charged on riskier loans to small firms.

Regarding future business, about 15 percent of domestic respondents, on net, reported that the number of inquiries from potential business borrowers had decreased over the previous three months, a somewhat larger fraction than in the April survey.

–msamaad@cutimes.com

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Banks Report Mixed Results with Commercial Loan Demand, Most Easing Lending Standards

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