Us Banks Roll Out The Carpet For Businesses, Shun Individuals

Big banks are making it easier for businesses to get credit, but are continuing to tighten the screws on individual borrowers, a Federal Reserve (Fed) survey issued on Monday showed.

Competition was the force driving banks to cater more generously to corporations while, on the consumer side, they tightened the clamps, especially on credit-card borrowing.

The information came from a survey of senior lending officers at 55 commercial banks, one in a series the Fed conducts about every three months to assess trends in the credit markets. Many of the respondents reported that they had eased terms on business loans over the past three months, citing pressure from other banks and nonbanks as the cause, the survey reported.

 

Banks were competing aggressively on loan terms, including offering larger credit lines and reduced collateral. A small majority of survey respondents reported rising loan demand from large and medium-sized businesses, but several said small companies were more actively seeking loans. The Fed surveys loan officers about every three months.

Thelast similar survey, issued on November 18, noted some pullback in demand for consumer loans. The new survey similarly said there has been a recent slowdown in consumer loan growth but a marked pickup in home-equity loans.

Home-equity loans essentially put a house up for collateral on a loan and so carry somewhat lower rates of interest than unsecured loans. The Fed said home-equity loans were being substituted for other instalment-type debts, in part at the banks instigation, but also because individuals were choosingsuch loans.

This shift reportedly has arisen from bank promotion of such substitution as well as from the initiative of borrowers attempting to consolidate their debt, the survey said. Banks said they were pushing home-equity loans partly because of the increased riskiness of unsecured credit presumably because consumers try harder to make payments when their homes are at stake.

The Fed pointed out that for a fifth consecutive survey, a significant percentage of banks reported that they had tightened standards on consumer loans. Nearly 40 per cent of the banks, on net, said they had tightened standards for approving new credit card accounts, and 20 percent tightened standards on other consumer loans, the survey said.