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Fewer Banks Looking To Tighten CRE Lending Standards in 2018

Latest Fed Lending Survey Indicating Weaker Demand; Continued Strong Loan Performance
February 7, 2018
Fewer banks are expecting to tighten standards on commercial real estate loans this year, according to the latest Federal Reserve Senior Loan Officer Opinion Survey on Bank Lending Practices released this week.

In the latest survey, the Federal Reserve asked a special set of questions about their expectations for lending practices and conditions over 2018, assuming that economic activity progresses in line with consensus forecasts.

On balance, bank loan officers said they expected to tighten standards across all categories of CRE loans over 2018. Only a moderate and modest net fraction of banks reported expecting to tighten lending standards on construction and land development loans and loans secured by nonfarm nonresidential properties, respectively.

But a significant net fraction of banks reported that they expect to tighten lending standards on loans secured by multifamily residential properties.

In the fourth quarter bank loan officers had reported tightening standards on multifamily and construction and development loans but had left loans on other nonresidential lending unchanged.

A second set of special questions asked about banks' expectations for asset quality for 2018, as measured by their outlook for loan charge-offs and delinquencies, assuming that economic activity progresses in line with consensus forecasts.

Banks, on balance, reported little change to their outlook for delinquencies and charge-off rates for loans secured by multifamily residential properties or nonfarm nonresidential properties, whereas a modest net fraction of banks reported expecting the performance of construction and land development loans to deteriorate somewhat over 2018.

A modest net fractions of banks reported weaker demand for multifamily and construction and land development loans, while demand for loans secured by nonfarm nonresidential properties was basically unchanged on net. In contrast to domestic respondents, a moderate net share of foreign banks indicated that demand for CRE loans strengthened in the fourth quarter.

Regarding the demand for commercial and industrial business loans, a modest net share of domestic banks reported that demand from small firms has strengthened, while demand for such loans from large and middle-market firms was basically unchanged on net. A majority of banks indicated that increases in customers' needs to finance investment in plants and equipment contributed to stronger demand.

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