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Banks Easing Lending Standards In Order To Take Risks, Fed Finds

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WASHINGTON: Small businesses and consumers were wary about taking advantage of easier credit in the first quarter, but loan demand among large firms grew, the Federal Reserve said in a report on Monday that showed credit markets thawing unevenly.

The Fed's quarterly survey of senior bank loan officers showed an easing in lending standards, a sign that financial institutions were taking greater risks to expand credit.
Around 27 percent of respondents reported increased loan demand by large companies, while the appetite for loans from smaller firms rose 10 percent.

Demand from consumers for credit was flat except for a slight rise in requests for auto loans, although the willingness of banks to extend loans to consumers hit the highest level since 1994.
The report showed a slide in requests for home loans, as analysts had expected, given the depressed state of the U.S. housing market.

"It shows some signs of healing, but it's disproportionate across sectors," Bank of America Merrill Lynch economist Michelle Meyer said. "The corporate sector has been the bright spot ... and the consumer has been sluggish."

Analysts were looking closely for gains in credit demand from smaller businesses, which create a substantial share of new jobs, as an indication of the pace of economic recovery.
In the previous quarter small business loan demand had increased 6 percent. It was the first two consecutive months of gains since the first half of 2006.

"This is definitely moving in the right direction," said Eric Green of TD Securities. "Demand for credit from households is not going to be the same for many years."

(Reporting by Mark Felsenthal; Editing by Neil Stempleman)

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