Lending standards tightened in Q3

Commercial and industrial loan demand fell in the third quarter of the year amid an uncertain economic outlook and reduced risk tolerance, according to the Federal Reserve's October Senior Loan Officer Opinion Survey on Bank Lending Practices..Demand also weakened due to a drop in customer investment in plants or equipment; a fall in financing needs for inventories, mergers or acquisitions and accounts receivable; and lower precautionary demand for cash and liquidity. Smaller banks cited concerns about deposit outflows, deterioration in or a desire to boost liquidity and declines in the market value of fixed-income assets.."For credit card, auto and other consumer loans, standards reportedly tightened, and demand weakened on balance," the Fed stated. .According to the survey, 70 percent of banks kept lending standards the same for firms with annual sales of $50 million or less, while a significant net share — 30 percent — tightened requirements. Loan tightening was especially reported for costs of credit lines, spread of loan rates over the cost of funds and premiums on riskier loans. For loans to larger businesses, 62.7 percent kept standards the same while 35.6 percent of banks tightened standards, down from 50.8 percent in the second quarter. ."Tightening of C&I lending standards and terms was less widely reported by large banks than by other banks, as slightly higher net fractions of other banks reported tightening standards and all terms," the Fed stated. .Banks also reported tighter standards and a drop in demand for commercial and residential real estate loans. The decrease in CRE demand came as increased vacancy rates and slowed rent growth continued to plague the CRE market. According to the National Association of Realtors, the office vacancy rate reached a record high of 13.3 percent in August due to negative net absorption and new supply.