Many U.S. banks eased rules for loans made to businesses

Demand by consumers weakened, Fed reports

August 17, 2004|By BLOOMBERG NEWS

WASHINGTON - Banks in the United States relaxed credit standards for commercial and industrial loans in the past three months, as demand for consumer loans weakened, according to a Federal Reserve survey of bank senior loan officers released yesterday

Forty-two percent of respondents said they eased standards for commercial and industrial loans from May through last month, up from 30 percent in an April poll, said the central bank's survey of officers at 56 domestic and 19 foreign banks.

Demand for business loans grew, with 37 percent of the respondents reporting "moderately stronger" interest from borrowers, up from 20 percent three months ago.

Household demand for loans fell, the quarterly Fed report showed.

About 17 percent of the banks that responded said consumer loan demand fell "moderately," compared with 3 percent in the survey three months ago. Banks' willingness to lend to consumers was little changed from the April survey.

In trying to sell more business loans, banks "cited more aggressive competition from other banks or non-bank lenders as the most important reason for the change," the Fed survey said. On the consumer side, "this reported slackening in demand is not surprising given the slowdown in consumer loan growth at banks during the spring."

Twenty-one percent of the respondents said demand for home loans was weaker, compared with 24 percent three months earlier.

This year, several large U.S. banks have benefited from more consumer lending, fewer losses on loans and stronger fees from services such as investment advice and insurance.

Bank of America Corp., the third-biggest U.S. bank, said last month that second-quarter profit rose 41 percent. Wachovia Corp. and Fifth Third Bancorp reported higher second-quarter profits as fees from consumer services rose and lending increased.

Comerica Inc. said it booked higher profit as it set aside less for bad loans. Second-quarter profit at Citigroup Inc., the world's biggest bank, rose 24 percent excluding legal costs.

The previous senior loan officer survey, conducted in April and released May 7, showed banks had relaxed their lending standards for businesses over the past several months amid increased competition and an improving economy.

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