PROMONTORY INTERFINANCIAL NETWORK SERVICES UPDATE:
Banker Confidence Index
By Steve Kinner
In our travels across the country, many of us at Promontory Interfinancial Network get the chance to meet with bank executives at institutions of all sizes. Often the first question we are asked is, “What do senior executives at other financial institutions think about the future of the industry?” To help answer that question, we are pleased to share with you our Banker Confidence Index (“Index”) – aggregated data based on responses from bank C-level executives about overall expectations for the future. The Index charts whether banks believe conditions will improve or worsen in the next 12 months. A reading of 50 indicates an expectation of no change.
Bank executives ended the first quarter of 2016 with a cautiously optimistic outlook. After reaching a low of 48.8 at the end of 2015, the Index, rebounded slightly to 50.5 for the first quarter of 2016. The Index is based on responses from 239 CEOs, Presidents, and CFOs across four key areas:
1. Access to capital
2. Loan demand
3. Funding costs
4. Deposit competition
Still, bankers view the next 12 months with a more subdued outlook compared to how they viewed the future this time last year. This outlook is colored heavily by the lending market which continues to grow, but faces some headwinds. The FDIC reported in its Quarterly Banking Profile for Q1 of 2016 that loan losses posted a second consecutive quarterly increase, and noncurrent C&I loans rose.
In general, smaller community banks, those with less than $1 billion in assets, are slightly more optimistic than banks with between $1 billion and $10 billion in assets. This greater optimism is driven primarily by small banks’ higher expectations for growth in loan demand, which was nine percent higher than the expectations of larger community banks. This optimism for loan demand growth overcame the greater concern by small banks about increased competition for deposits.
- Northeast. Bank respondents in the Northeast were most conservative in their expectations around loan demand. However, there were also lower expectations that funding costs or deposit competition would increase.
- Midwest. The most pessimistic of the four regional areas, Midwest bank respondents indicated expectations for modest growth in loan demand alongside increases in funding costs and competition for deposits.
- South. Respondents from Southern banks were the most optimistic, with a 52.2 index; the only region that ranked above 50. The ranking was based largely on respondents’ notable confidence in loan demand growth.
- West. Falling barely below 50, respondents from Western banks are less optimistic than Southern bankers about their loan demand prospects, but more positive than Northeast banks. Similar to Northeast banks, Western banks have lower expectations for a rise in funding costs.