US banks see loan demand rising in 2024, Fed survey shows

By Ann Saphir and Howard Schneider

(Reuters) -U.S. banks anticipate an increase in demand for loans as interest rates fall this year, even as they further tighten credit standards on some types of loans, according to a Federal Reserve survey of senior bank lending officers published on Monday.

Banks cited deterioration in collateral values and a less favorable economic outlook as reasons they will likely tighten standards on commercial real estate, credit card and auto loans this year, the survey showed. They also expect loan quality to deteriorate across most types of loans, according to the survey.

But the survey also showed a smaller proportion of banks tightening lending standards in the fourth quarter of 2023 compared to the prior quarter, and that loan demand improved slightly.

"The move in the direction away from severe tightening and towards net easing is probably a favorable development for economic activity," wrote JPMorgan economist Daniel Silver.

Fed officials had the survey data when they decided to keep the policy rate steady in the 5.25% to 5.5% range and signal that interest rate cuts are on tap for this year but unlikely before May.

The survey findings are "unlikely to generate any urgency for easing," wrote Dave Sloan, a senior economist at Continuum Economics.

In its post-meeting statement, the Fed notably dropped a reference to the likelihood that tight credit will weigh on economic activity.

Overall the loan officers' survey shows "the worse of monetary tightening for the financial market may be behind us," wrote RSM US economist Tuan Nguyen, with all indicators showing significant improvement since last July, when the Fed delivered the final rate hike in its tightening campaign.

Last week shares of New York Community Bancorp plunged after the regional lender reported stresses in its commercial real estate loan portfolio, touching off broader worries about the health of some smaller U.S. banks.

(Reporting by Ann Saphir; Editing by Mark Porter and Lisa Shumaker)