US: Banks Report Slowing Loan Demand

■ US banks show no signs of concern about rising credit risk 

■ Falling loan demand may signal stagnant economic activity  
 
    The Federal Reserve (FRB) released its latest Senior Loan Officer Opinion Survey (SLOOS) on August 4th. The FRB conducts this survey quarterly with loan officers at US financial institutions, asking about changes in lending standards, funding needs, and other factors compared to the previous three months. Responding financial institutions received the survey on June 18th and were required to respond by July 2nd. 
 
    The DI (the percentage increase in demand minus the percentage decrease in demand) for commercial and industrial loans to large and medium-sized enterprises (with annual sales of over US $50 million) was -28.6, more negative than the -20.3 in the previous April survey, indicating a continued decline in loan demand. Bank responses show that the number of respondents reporting a "slight decline" in loan demand has increased over the past three months, signaling weakening corporate appetite for equipment investment and mergers and acquisitions (M&A). Meanwhile, the lending standards DI (the percentage of responses indicating tightening minus the percentage indicating loosening) was 9.5, down from 18.5 in the previous survey, but still within the tightening range. Financial institutions reporting "tightening standards" attributed this to economic uncertainty, regulatory changes, supervisory measures, and ambiguity surrounding US government policy. 
 
    Regarding household loan demand, the decline in the DI for jumbo loans (-7.5 to -11.5) widened for the wealthy, while the credit card DI (-14.8 to -12.5), though recovering from the sharpest decline since the COVID-19 pandemic, still indicates weak household loan demand. Although the tightening trend in the lending standards DI for jumbo loans (7.5 to 0) has ended, the tightening trend for credit cards (5.6 to 10.4) has resumed. In the first quarter of 2024, new delinquency rates for home loans increased month-over-month (3.61% to 3.71%), while auto loans (8.08% to 7.99%) and credit cards (8. 96% to 8.75%) declined, ending the upward trend observed since the second half of 2024. 
 
    Although lending standards remain tight for both businesses and households, overall loan demand has declined. This aligns with the weakening of personal consumption and equipment investment in the US real GDP from April to June. While financial institutions have not significantly tightened lending due to concerns about rising credit risk, the slowdown in loan demand points to a possible stagnation in economic activity. These survey results suggest caution regarding a potential slowdown in the US economy from July to September.