Washington November 3 - More US banks tightened their lending standards and terms for business loans over the last three months than the middle of the year, while consumers continued to feel the effects of the current credit crunch, a Federal Reserve survey showed on Monday.

The Fed's October Senior Loan Officer Survey also showed that demand for credit weakened among both businesses and households over the last three months.

About 85% of domestic banks -- up substantially from 60% in the July survey -- reported having tightened lending standards on commercial and industrial (C&I) loans to large and middle-market firms. About 75% of domestic banks said they tightened standards on such loans to small firms, up from July.

Almost all banks tightening credit terms for commercial and industrial loans "pointed to a less favorable or more uncertain economic outlook" as a factor, while large majorities of respondents "indicated that their banks' reduced tolerance for risk and a worsening of industry-specific problems were factors in their decision."

About 75% of foreign respondents and 40% of domestic respondents "noted that a deterioration in their bank's current or expected capital position had contributed to the move toward more stringent lending policies over the past three months, higher fractions than had cited that factor in the late July survey."

The October survey also suggested a slight further weakening of C&I loan demand. A substantial majority of these respondents pointed to "decreases in customers' needs to finance investment in plant and equipment, to finance inventories, and to finance customer accounts receivable as reasons for the weaker demand."

For commercial real estate loans, 85% of domestic banks reported that they had tightened lending standards. About 65% of foreign banks had done the same, up considerably from about 35% in the July survey. About 55% of domestic banks -- up from 30% in July -- reported weaker demand for such loans.

Lending standards for consumer loans tightened again for most banks. About 70% of domestic banks said they tightened their lending standards for residential estate loans on prime mortgages, following the 75% that said they tightened standards in the July survey. About 50% of domestic respondents -- compared to 30% in July -- experienced weaker demand for prime residential mortgages.

About three-fourths of domestic banks, the same fraction as in July, said they had tightened lending standards for revolving home equity lines of credit (HELOCs). And about a quarter of banks, more than double in July, reported weaker demand for these loans.

Meanwhile, nearly 60% of respondents said they tightened lending standards on credit card loans, while nearly 65% said they had tightened lending conditions on other consumer loans. About half of respondents indicated that they had experienced weaker demand for consumer loans of all types over the past three months, up from 30% in the July survey.

tessa.moran@thomsonreuters.com tlm/wash

COPYRIGHT

Copyright Thomson Financial News Limited 2007. All rights reserved. The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.