US: Bank of America tightens lending standards for NDFI

■ Loan Demand Recovery Slows, Lending Standards Tighten  

■ Stricter lending standards for NDFIs warrant attention regarding potential deterioration in credit for borrowers with lower creditworthiness. 
 
The Federal Reserve (FRB) released its latest Senior Loan Officer Opinion Survey (SLOOS) on the 4th. This survey, conducted quarterly by the FRB, interviews loan officers at U.S. financial institutions to understand changes in lending standards and funding needs compared to three months prior. Financial institutions participating in this survey received questionnaires on March 23rd of last year and completed their responses by April 3rd.  

     The Demand Index (DI) for commercial and industrial loans to large and medium-sized enterprises (annual sales exceeding $50 million) was positive 4.8, a decrease from the previous January survey (positive 16.1), indicating a slowdown in the rate of increase in loan demand. Feedback from various banks showed a significant decrease in the number of responses indicating increased demand, suggesting a slight weakening of companies' willingness to invest in equipment and conduct mergers and acquisitions (M&A). Furthermore, the lending standard DI (tightening percentage - easing percentage) rose to 8.1, up from the previous survey's 5.3, continuing its tightening trend since the July-September 2022 quarter. Regarding the reasons for the further tightening compared to the previous quarter, respondents cited economic uncertainty, with the increased uncertainty stemming from the deteriorating situation in the Middle East appearing to be a major concern. On the other hand, those who cited easing lending standards primarily pointed to intense competition with other financial and non-bank institutions. 
 
Regarding the DI for loan demand from the household sector, both credit cards (-4.5 → -6.0) and auto loans (-22.9 → -9.8) showed a decrease in demand. Against the backdrop of a deteriorating employment and income environment, consumer willingness is gradually weakening. Looking at the lending standard DI, credit cards (0 → positive 2) have re-entered the tightening range, while auto loans (-6.1 → -2.0) have continued their easing trend, showing inconsistent overall trends. 

 
This SLOOS survey also included additional information on lending to non-depository financial institutions (NDFI). Overall, loan demand has strengthened compared to a year ago, with a more significant increase in private equity (PE) financing compared to personal and corporate credit intermediaries. On the other hand, lending standards are tightening, with a stronger tightening in personal and corporate credit intermediaries than in PE. Regarding the reasons for this tightening, respondents cited economic uncertainty, declining risk tolerance among US financial institutions, and rising borrower default risk. Furthermore, even with reduced economic uncertainty and less competition from other financial institutions, several respondents indicated they would not relax lending standards. This can be interpreted as US financial institutions becoming more vigilant about the risks of credit intermediation lending and monitoring whether credit conditions for borrowers with lower creditworthiness are deteriorating.