Summary II on Supervision and Regulation – “Loan Growth as well as Delinquencies”
Blog article
The semiannual Supervision and Regulation Report (the “Report”) has been published by the Federal Reserve Board. Its purpose is to inform the public of current banking conditions as well as provide transparency about its supervisory and regulatory policies and actions. The following is a summary on the section in the Report on the Loan Growth as well as Delinquencies.
/ Loan Growth
The regulators indicate in the Report that the loan growth is still positive but owing to weaker loan demand and tighter lending standards, has slowed from a rapid pace the year before. Loan growth in most sectors was modest in 2023 with an exception of the credit card sector. Credit card balances increased to a historic high at the end of 2023, despite tightened lending standards and fewer credit line increases at large banks.
In terms of lending standards, we at VERMEG REG Desk examined the Senior Lending Officer Opinion surveys from 2021 to now; and observed a significant increase in the percentage of survey respondents tightening the credit card standards in 2023. Below are responses in January 2023 to the following question:
Q: Over the past three months, how have your bank’s credit standards for approving applications for credit cards from individuals or households changed?
| All Respondents | Large Banks | Other Banks | ||||
|---|---|---|---|---|---|---|
| Banks | Percent | Banks | Percent | Banks | Percent | |
| Tightened considerably | 0 | 0 | 0 | 0 | 0 | 0 |
| Tightened somewhat | 13 | 28.3 | 9 | 33.3 | 4 | 21.1 |
| Remained basically unchanged | 33 | 71.7 | 18 | 66.7 | 15 | 78.9 |
| Eased somewhat | 0 | 0 | 0 | 0 | 0 | 0 |
| Eased considerably | 0 | 0 | 0 | 0 | 0 | 0 |
| Total | 46 | 100 | 27 | 100 | 19 | 100 |
Overall asset quality remains generally sound, the Report indicates.
/ Loan Delinquency
The total loan delinquency rate was below one percent at year-end 2023. The delinquency rate for commercial and industrial (C&I) loans remained stable, while the delinquency rate for residential real estate (RRE) declined steadily throughout 2023.
However, delinquency rates are rising in Commercial Real Estate (“CRE”) and some consumer sectors. Particularly, the delinquency rate for CRE loans increased to 0.9 percent, a five-year high, which was due to loans secured by “nonowner-occupied nonfarm nonresidential properties” in banks with at least $100 billion in total assets. Nonowner-occupied nonfarm nonresidential properties include hotels, offices, retail stores, warehouse facilities, and other types of business property used as collateral.
The regulators indicated that at the large banks, “office loans showed the greatest delinquency rate increase among property types, particularly in metropolitan areas. Reduced demand for office space and higher interest rates adversely affected office loan performance. While banks with total assets of less than $100 billion have lower CRE delinquency rates than large banks, they have a greater percentage of their total loans exposed to the CRE sector.”
To know more about Summary I Supervision and Regulation Report: click here
VERMEG REG Desk