Business Loan Demand Increases

U.S. banks reported an increase in demand for business loans for the first time in four years as companies grew more confident in the expanding economy, a Federal Reserve survey showed Tuesday.

Demand for commercial real estate loans in the last three months also increased for the first time since 2000, while home mortgage loans cooled, according to the January survey of senior loan officers at 56 domestic and 21 foreign banks with branches in the United States.

The economy grew in 2003’s final six months at a 6.1% pace, the fastest since the first half of 1984, according to government data. That has prompted firms to boost spending on equipment and borrow from banks.

“The most important reasons for the strengthening of loan demand over the past three months were increased customer investment in plant and equipment and increased customer needs to finance accounts and inventories,” the Fed said.

More than 20% of domestic banks said demand had increased for business loans from small firms and 11% from larger companies.

Almost 40% of domestic banks indicated that demand for mortgages to buy homes had “deteriorated a significantly greater proportion than in the October survey,” the Fed said. The average rate on a 30-year fixed-rate mortgage has risen since reaching a record low in June.

The Fed also said the pace of refinancing had slowed considerably since the middle of last year.

About 15% of banks reported weaker demand for all types of consumer loans in the last three months, the largest since the fourth quarter of 2001, the Fed said.

Consumer loan demand has been driving bank profits.

Banks are seeking acquisitions amid concern that rising interest rates and the end of a boom in mortgage lending will curb profits.

J.P. Morgan Chase & Co. agreed Jan. 14 to pay $55 billion for Bank One Corp., and Bank of America Corp. said it was buying FleetBoston Financial Corp.