Federal Reserve Survey: Weak Loan Demand from U.S. Companies in Q1 2025, Bank Credit Policies Continue to Tighten

According to the Zhitong Finance APP, the Federal Reserve's "Senior Loan Officer Opinion Survey Report for April 2025" released this week shows that in the first quarter of 2025, U.S. banks continued to adopt a more cautious stance in lending to businesses and households. The report indicates that overall corporate credit standards have tightened, with weak loan demand, particularly evident in the commercial and industrial (C&I) loan and commercial real estate (CRE) loan sectors.

Survey data shows that most banks tightened C&I loan standards for large, medium, and small enterprises in the first quarter of 2025, while also strengthening risk controls, such as increasing collateral requirements, reducing credit limits, and raising risk loan spreads. For small enterprises, some banks even slightly relaxed spread requirements, but the overall credit environment remains tight.

Regarding the reasons for tightening loan policies, banks generally pointed out that uncertainty in the economic outlook, concerns about regulatory changes, deterioration of industry-specific issues, and a decrease in risk tolerance are all important factors driving them to tighten credit.

In terms of demand, the vast majority of banks reported a decline in corporate loan demand to varying degrees, particularly due to a reduction in capital expenditures such as equipment investment and merger activities, leading to a noticeable decrease in inquiries for new loans or increased credit limits.

In the commercial real estate loan sector, most banks have tightened standards for construction development loans and non-farm, non-residential property loans, while the standards for multi-family residential loans have remained largely unchanged. Notably, large banks have a slightly more lenient attitude towards multi-family and development loans, while other banks have generally strengthened the review process for various types of CRE loans.

On the demand side, banks' feedback on CRE loan demand shows a polarized trend. Some large banks indicated a recovery in CRE loan demand, while small and medium-sized banks reported weak demand. For foreign banks, the report shows an upward trend in demand for CRE loans.

Additionally, a special survey on changes in CRE loan policies over the past year indicates that banks have generally tightened core indicators such as loan-to-value ratios and debt service coverage ratios, and shortened interest-only periods. Particularly in the office building loan sector, all surveyed banks reported varying degrees of tightening in all assessment policies.

The main reasons for tightening office building loans include concerns about future market factors such as office building rents, vacancy rates, property prices, and default rates, as well as a decrease in overall risk tolerance.

In terms of household loans, banks have maintained stable standards for most residential real estate loans, with only slight tightening for some non-compliant large loans. Meanwhile, banks reported that the demand for most housing loans has weakened, especially for non-GSE compliant loans and government-supported loans, where the decline is most significant.

The only exception is home equity lines of credit, where banks not only maintained lending standards but also reported a rebound in demand for these loans.

In the consumer loan sector, some banks have slightly tightened credit card loan standards, particularly implementing stricter restrictions on credit limits. However, the standards for auto loans and other consumer loans have remained largely unchanged.

On the demand side, consumer demand for credit cards and other consumer loans has weakened, while demand for auto loans has remained stable