Banks expect tougher consumer lending standards

US banks expect to tighten lending standards this year, reflecting concerns about loan performance, particularly in the consumer sector.

The Federal Reserve’s quarterly survey of senior loan officers found that a large net share of banks expect poorer performance in 2020 for credit card loans and auto loans to non-preferred borrowers.

As a result, 18.4% of banks said they expected to tighten credit card lending standards and 8.9% said they planned to toughen them for car loans.

According to the Wall Street Journal, “auto loans and credit card loans have become a matter of concern over the past year, following reports from the New York Fed showing that delinquency rates on cars and credit cards have increased, especially among households with lower credit scores.

“It could be that we lengthen a bit in the cycle and the labor market matures,” said Kathy Bostjancic, chief U.S. financial economist at Oxford Economics. “Personal income growth is beginning to slow gradually, [which] might force some consumers to stretch out a bit.

But she added: “We are far, far away from the conditions that existed before the Great Recession.”

Small net fractions of banks also expect to tighten standards this year on commercial and industrial loans to large and medium-sized businesses, as well as non-farm and non-residential commercial real estate loans. Banks expect some deterioration in performance for all types of corporate loans surveyed, with the exception of CRE multi-family loans, where performance is expected to remain unchanged.

For the fourth quarter, loan officers said they left lending standards for businesses and most commercial real estate unchanged, while seeing a drop in demand for business loans.

“Banks reportedly tightened lending standards on credit cards and auto loans, while demand was flat for credit cards and weakened for auto loans,” the Fed said.

Banks previously said they kept lending standards virtually unchanged for many business loans while tightening commercial real estate lending in the third quarter. The Fed surveyed loan officers at 74 domestic banks and 22 US branches and agencies of foreign banks.

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