US banks tightened loan standards in first quarter as coronavirus outbreak took hold
05 May, 2020
Loan officers at US banks reported drastically tightening standards and terms on loans in the first 90 days of the year as the coronavirus outbreak in the United States started to shutter large elements of the economy and millions became newly unemployed.
The officers also said in the Federal Reserve survey released on Monday that there is greater demand for loans from medium- and large-sized firms, but that business loan demand from small businesses was roughly unchanged.
Banks reported tightening standards across all three consumer loan categories - credit card loans, auto loans, and other consumer loans - but saw weaker demand for them during the same period.
“Banks reported that the changes in standards and demand across loan categories reported for the first quarter occurred late in March as the economic outlook shifted when news emerged about the rapid global spread of COVID-19,” the US central bank said in its quarterly survey, discussing the respiratory disease due to the virus.
The latter half of March was when US states and local governments shut non-essential businesses and issued “stay-at-home” orders to limit the spread of the virus.
Since that time, such businesses have struggled to stay afloat, leading to actions by US lawmakers and the Federal Reserve to try and limit the fallout and push away a wave of bankruptcies.
The US Small Business Administration has processed over 3.8 million loans for over fifty percent a trillion dollars because the launch of the Paycheck Protection Program on April 3, the federal government agency said on Sunday. This program was created to provide forgivable, government-guaranteed loans to small businesses shuttered by the outbreak.
The central bank said the other day it would soon open its “Main Street Lending Facility,” with US$600 billion in loans available to companies with up to 15,000 employees and $5 billion in revenue.
Since early March, the Fed has pumped trillions into US financial markets to keep credit flowing to businesses and households. It has launched numerous crisis-fighting programs, slashed interest rates to near zero and resumed large-scale asset purchases.
US banks previously reported keeping loan standards mostly unchanged for many loans and commercial property loans in the fourth quarter of this past year.
In tightening standards, loan officers cited a deteriorating or even more uncertain monetary outlook, a worsening of industry-specific problems, and reduced tolerance for risk.
They also said due to the ramifications of the coronavirus outbreak they “were centered on existing clients rather than granting loans to new customers.”
The Fed surveyed loan officers at 67 domestic banks and 22 US branches and agencies of foreign banks.
Source: www.thejakartapost.com