This voluntary survey is conducted with a senior loan officer at each respondent bank. Senior financial officer staff at the reserve banks with knowledge of bank lending practices administer the interview. The reporting panel consists of up to 60 large, domestically chartered commercial banks and up to 24 large U.S. branches and agencies of foreign banks. The purpose of the survey is to provide qualitative and limited quantitative information on credit availability and demand, as well as evolving developments and lending practices in the U.S. loan markets.

Commercial and industrial loans (C&I is any type of loan made to a business or corporation in order to provide either working capital or to finance major capital expenditures), saw loans lending standards ease in Q2-2017,senior-loan-fig1 (Figure 1). This is the first quarter in which surveyed lenders reported looser lending standards for all sizes of businesses since mid-2015. Delinquency rates fell a small amount to 5.9%, the first decline in over a year. Banks cite greater competition as well as a healthier future outlook for the improved risk appetite. This is very encouraging news for the health of the manufacturing economy.

Commercial real estate loans lending standards on the other hand continued to tighten, (Figure 2). senior-loan-fig2Lending standards began tightening in Q3-2015 and have continued to tighten with each passing quarter. A net 32.4% of banks reported tighter lending standards for construction and land-development loans in Q2-2017. Demand for commercial real estate loans has weakened for the second consecutive quarter. A net 9.9% of surveyed banks reported weaker demand for construction and land-development loans. This decline was on the heels of a negative 7.4% weaker number reported in the previous quarter. These two down quarters were reported after a 25 quarter run of increasing demand. Lenders are being more cautious with their capital. Surveyed banks reported lowering loan-to-value ratios and increasing debt service coverage ratios. In addition to scrutinizing the markets that get funded and reducing the number of interest only loans.

At Gerdau, we keep a keen eye on the Federal Senior Loan Officer Survey because it offers insight into the future demand for steel products. If demand is increasing and capital is widely availability, future steel sales will be robust. Of course the opposite is true if demand is waning and capital availability is difficult to come by.