-- Repeating story from earlier
WASHINGTON (Dow Jones)--Fewer U.S. banks tightened business loan standards over the past three months and one bank eased its standards, the first reported easing since 1999, the Federal Reserve said Monday.
Most banks also reported that they had "very little" exposure to firms that have been the target of investigations into their accounting practices, the Fed said in its latest senior loan officer survey.
Most domestic banks and about half of foreign branches and agencies reported that less than 1% of their outstanding commercial and industrial loans had been made to firms under investigation because of their accounting practices or to firms that have materially changed their prior period financial statements.
However, three large domestic banks and one foreign bank reported that more than 5% of their outstanding C&I loans were made to such companies, the Fed said.
Some banks also indicated that more companies are submitting misleading financial information. A few domestic banks characterized the increase as "notable," the Fed said.
"In response, the majority of the banking institutions in the survey have begun requesting additional financial detail and increasing the frequency or intensity with which they monitor loans," the Fed said.
"Many banks also reported that loan covenants have been enforced more strictly and that loan terms had been tightened," the Fed said.
Very few domestic banks have resorted to calling loans or refusing credits that previously would have been approved, "but significant fractions of foreign institutions reported taking such actions," the Fed said.
Regular financial statements received the highest relative weight when assessing credit risk, with credit ratings by independent ratings agencies the second most important piece of information, banks said.
While banks are stepping up loan monitoring and asking for more information, fewer banks tightened standards over the past three months. The percentage of U.S. banks reporting having tightened standards on C&I loans to large and middle-market firms edged down to 23% from 25% in the previous survey, the Fed said.
However, for several of the surveyed terms on loans to large and middle- market firms, larger fractions of domestic banks reported tightening standards over the past three months, the Fed said.
"The net fraction of domestic banks that had increased cost of credit lines and raised spreads of loan rates over their costs of funds rose to about 40% in August from about 20% in the April survey," the Fed said.
"Moreover, almost 50% of domestic banks increased premiums charged on riskier loans to large and middle-market firms, about the same as in the previous two surveys," the Fed said.
More than 80% of the banks that tightened standards voiced concerns about the economic outlook, up from 70% in the previous survey.
About 60% of domestic banks and nearly all foreign branches cited concerns about further revelations of accounting improprieties as an important reason for tightening standards.
"Many banks also cited industry-specific problems and an increase in corporate bond defaults as very important reasons for tightening lending policies," the Fed said.
The fraction of foreign institutions that have tightened standards for customers seeking C&I loans or credit lines rose to 60% in August from about 40% in the April survey, the Fed said.
As for loan demand, about 45% of domestic banks on net reported weaker demand for C&I loans from large and middle-market firms in August, up from one- third in April.
Fewer banks tightened standards on commercial real estate loans over the past three months. The percentage of banks reporting tighter standards on commercial real estate loans fell to 25% in August from 30% in April.
Only three domestic banks reported tightening lending standards on residential mortgage loans, and one bank reported easing them. On net, about 27% of domestic respondents reported an increased demand for residential mortgages, up sharply from 6% in the previous survey.
The Fed survey polls loan officers at 56 large domestic banks and 20 U.S. branches and agencies of foreign banks.
-By Deborah Lagomarsino, Dow Jones Newswires; 202-862-9255; deborah.lagomarsino at dowjones.com
FSN46023 CDOT CURRENCY ECONOMY FINANCIAL TOP 2002-08-19 19:20:12 UTC ^^^^^