Newsquawk

Fed SLOOS Survey (April): Addressed changes in the standards and terms on, and demand for, bank loans to businesses and households over the past three months, which generally correspond to Q1 '23

Net 46.0% of banks (prev. 44.8% Q/Q) tightened credit for C&I loans for large & medium firms through Q1.

Net 46.7% of banks (prev. 43.8% Q/Q) tightened credit for C&I loans for small firms through Q1.

Net 62.3% of banks (prev. 44.8% Q/Q) raised spreads for C&I loans for large & medium firms through Q1.

Net 58.3% of banks (prev. 32.8% Q/Q) of banks raised spreads for C&I loans for small firms through Q1.

Net -55.6% of banks (prev. -31.3% Q/Q) reported stronger demand for C&I loans from large & medium firms through Q1.

Net -53.3% of banks (prev. -42.2% Q/Q) reported stronger demand for C&I loans from small firms through Q1.

Banks tightened credit terms for all categories of commercial real estate loans through Q1 vs prior quarter and saw weaker cre demand.

Banks tightened credit terms for all categories of consumer credit through Q1 vs prior quarter; fewer were more willing to make consumer installment loans.

COMMENTARY:

Regarding loans to businesses, survey respondents reported, on balance, tighter standards and weaker demand for commercial and industrial (C&I) loans to large and middle-market firms as well as small firms over Q1.

Meanwhile, banks reported tighter standards and weaker demand for all CRE loan categories.

For loans to households, banks reported that lending standards tightened across all categories of residential real estate loans other than government-sponsored enterprise-eligible and government residential mortgages, which remained basically unchanged. Meanwhile, demand weakened for all RRE loan categories.

In addition, banks reported tighter standards and weaker demand for home equity lines of credit. Standards tightened for all consumer loan categories; demand weakened for auto and other consumer loans, while it remained basically unchanged for credit cards.

April SLOOS included three sets of special questions, 1) which inquired about banks' changes in lending policies for CRE loans over the past year; 2) about the reasons why banks changed standards for all loan categories over the first quarter; 3) and about banks' expectations for changes in lending standards over the remainder of 2023 and reasons for these changes.

For 1) banks, on balance, reported tightening lending policies for all categories of CRE loans over the past year, with the most frequently reported changes pertaining to wider spreads of loan rates over banks' cost of funds and lower loan-to-value ratios.

2) banks cited a less favorable or more uncertain economic outlook, reduced tolerance for risk, deterioration in collateral values, and concerns about banks' funding costs and liquidity positions.

3) banks reported expecting to tighten standards across all loan categories. Banks most frequently cited an expected deterioration in the credit quality of their loan portfolios and in customers' collateral values, a reduction in risk tolerance, and concerns about bank funding costs, bank liquidity position, and deposit outflows as reasons for expecting to tighten lending standards over the rest of 2023.

Reaction details (19:43)

Within a few minutes, 2yr futs fell from 103-078 to 103-063 before extending lower as the dust settled, while the 10yr T-Note fell from 115-11+ to 115-08 initially, before also extending lower.

Fed pricing for a June hike has shifted to a 12% probability from a 9% probability, while the implied year-end Fed rate has risen to 4.40% from 4.35%.

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The DXY edged higher from 101.28 to 101.36 within five minutes, hovering near the highs from there.

08 May 2023 - 19:00- Fixed IncomeImportant- Source: Fed