Allison Landa writes in NuWire Investor that though a Federal Reserve report finds lending standards are still strict amongst U.S. banks, fewer financial institutions reported tightening up on commercial real estate loans. 

According to the July Senior Loan Officer Opinion Survey on Bank Lending Practices, the number of U.S. banks that reported tightening standards on commercial real estate loans was about 45 percent, down from 65 percent in April. 

However, this does not indicate that strict standards do not continue to exist throughout commercial real estate lending. 

“This fraction is higher than that reported for (commercial and industrial) loans and all consumer lending categories except nontraditional residential mortgages,” the report says. The number of banks that reported tightening on nontraditional residential mortgages also fell to 45 percent from 65 percent in April.

The Fed report also found that about 45 percent of foreign banks reported tightening their lending standards for commercial real estate, a slight uptick from April. However, the number of respondents reporting weaker demand for loans fell slightly to 65 percent in July, though the Fed warned that this percentage remains large by historical standards as well as relative to other loan categories. Weaker demand was also reported by overseas respondents; foreign demand for commercial real estate loans increased to 45 percent, slightly up from April.

Overall, the Fed report indicates lending standards continued to tighten over the past three months on all major types of loans, though fewer banks indicated that they were tightening. The report predicts strict lending criteria to remain in effect for at least through the middle of next year.

“Domestic banks pointed to decreased loan demand and deteriorating credit quality as the most important reasons for declines in (consumer and industrial) lending this year,” the report reads. “Most banks reported that they expected their lending standards across all loan categories would remain tighter than their average levels over the past decade until at least the second half of 2010.”

The survey, which evaluates changes in supply of and demand for loans to businesses and households, is based on responses from 55 domestic banks as well as 23 U.S. branches and agencies of foreign banks. Respondents are asked to rank the causes of declines in commercial and industrial lending along with detailing their expectations for trends in lending standards.

NuWire Investor