Financial institutions in recent years have held firm on tight credit restrictions to protect against risk, and though standards will likely continue to be closely maintained, a recent report shows that in some cases, banks are lightening restrictions to appease demand.
The most recent Senior Loan Officer Opinion Survey from the Federal Reserve Board was released in October, and reported easing credit requirements for certain types of loans. At the same time, it's a slow process, and the majority of loan officers say their bank is holding steady on existing credit requirements.
Perhaps more importantly, demand for certain types of loans has increased over the past three months. About 20 percent of respondents said demand for commercial and industrial loans was stronger in the past quarter, while 50 percent said more businesses have sought commercial real estate loans during that time period.
Residential mortgages are also in demand – nearly 40 percent of respondents described moderate or substantial strength in this area.
Leveraging demand into growth with sophisticated application processing tools
Stronger demand certainly presents opportunities for commercial and residential lenders, but it is important for these financial institutions to take care when evaluating potential borrowers during the application processing stage. Easing lending standards can entice borrowers, but progressing too far down the path of loose restrictions may expose lenders to unnecessary risk.
That is why a risk management framework supported by sophisticated credit application software is so valuable during times of increasing loan demand. With the tools in place to achieve a rounded look at each applicant's credit history – even from alternative data sources such as utility and rent payments – banks are in a better position to ensure steady but safe portfolio growth.
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