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The bankers have spoken: Credit standards were tightened and demand for loans was weak in the second quarter of the year, trends that will continue towards the second half of the year, according to a new survey by the Federal Reserve.

The July Senior Loan Officer Opinion Survey (SLOOS) showed that lending standards for both individuals and businesses have tightened from April to June across loan categories whether commercial and industrial, commercial real estate or residential real estate  loans.

The SLOOS surveys senior loan officers nationwide and looks at the quarterly changes in standards, terms, and demand for bank loans to businesses and households.

With the Fed raising key interest rates by 25 basis points in its July meeting, as well as pushing for higher bank capital reserves, banks have been on the defensive on its lending standards.

National and foreign banks reported tightened credit terms, maximum credit size, and maturity of credit lines to all business sizes due to factors such as “reduced tolerance for risk, deterioration in their liquidity positions, worsening industry-specific problems, increased concerns about the effects of legislative changes, supervisory actions, or changes in accounting standards, and decreased liquidity in the secondary market for loans.”

There was also weaker demand for commercial loans like C&I and CRE, as well as residential real estate and consumer loans such as home equity lines of credit, auto loans, and all other consumer loan categories.

But amid weakening demand across loan categories, credit card loan demand remains the same.

The banks noted that businesses have weaker loan demands due to “decreased customer investment in plant and equipment, decreased inventory financing needs, decreased merger and acquisition financing needs, and decreased accounts receivable financing.”

For the rest of 2023, the survey pointed out that banks will continue to further tighten lending for all loan categories of C&I loans. For CRE loans, they expect to further tighten standards on construction and land development loans, non-farm residential loans, and loans secured by multifamily properties.

For residential real estate loans, they are looking to tighten more on GSE-eligible loans and non-conforming jumbo loans.

The banks also expect that the economy will continue to be less favorable in the second half of the year and that collateral values and credit quality of CRE and other loans will deteriorate during the six-month period.