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Credit Expected to Improve Despite Tight Underwriting

The ""Office of the Comptroller of the Currency"":http://www.occ.treas.gov/ (OCC) released the findings of its 18th annual _Survey of Credit Underwriting Practices_, showing that credit writing standards were mostly unchanged from the year before.

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The survey, which included federal savings associations for the first time, examined the underwriting standards of 87 banks with assets of $3 billion or more in the 12-month period ending February 29.

It showed that while the larger banks eased their standards for some retail and commercial products underwriting standards largely remained the same from the previous survey.

Seventy percent of OCC examiners reported no change in

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underwriting, while 14 percent of banks eased their standards. Sixteen percent tightened their underwriting standards.

The most prevalent tightening occurred in commercial real estate (CRE) and international loans, while easing happened largely in leverage, asset-based, and large corporate lending.

OCC noted that national banks that loosened their standards tended to do so in response to changes in economic outlook, the competitive environment, and the bank's risk appetite. Tightening was mostly due to product performance and a lower risk appetite.

Changes from bank to bank were caused by differing expectations about the future health of the economy, which also came into play for most banks when easing or tightening standards.

Tightening in small business banking underwriting practices decreased, with 82 percent of banks reporting unchanged standards from the last survey. Credit risk levels in small business loans were stable and are expected to stay that way over the next year.

Approximately 18 percent of commercial and retail loan products showed increased credit risk relative to the 2011 survey, while 32 percent indicated decreased risk.

Half of loan products showed the same level of credit risk. Over the next year, examiners speculate that credit risk will likely increase for 25 percent of loan products, decrease for 24 percent, and remain the same for 51 percent.

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