Bank Executive Business Outlook Survey
As momentum picks up for an expected rate increase at the end of 2015 or early 2016, bankers appear to be largely optimistic about the impact a potential increase might have on their institutions.
In Promontory Interfinancial Network’s Q3 2015 Bank Executive Business Outlook Survey, which includes the responses of 207 CEOs, presidents, and CFOs of banks across the country, over 50% of respondents indicated that they expect a rate increase to have a positive impact on their banks. Another 21% of respondents expect a rate increase to have no impact.
This optimism about a rate increase comes even as bankers, on the whole, recognize that a rate increase will likely increase their short-term cost of funds. Nearly 70% of respondents expect their funding costs to increase over the next 12 months. The majority (58%) of those who expect an increase in funding costs expect it to be either moderately or significantly attributable to an increase in interest rates.
In past surveys, many respondents indicated that they welcome a rate increase since they expect to be able to reprice lending, adding to the overall revenue. However, general enthusiasm about a potential rate increase may mask some other areas of anxiety for banks as they plan for 2016.
Rise of nonbank lenders seen as significant threat.
The growth of nonbank lenders over the last couple of years is an area of significant concern for community banks. More than 80% of respondents indicated that the growth of nonbank lenders would have a negative impact on their institutions, and 26% expect the impact to be very negative. This concern comes even as nonbank lenders have concentrated on lending areas that community banks have deprioritized as growth drivers, such as residential and consumer lending.
Deposit gathering efforts grow in priority.
Respondents indicated that they are placing a higher priority on deposit gathering in 2016 compared to 2015. Attracting retail and corporate deposits ranked second and third, respectively, trailing only CRE lending on respondents’ list of lending and funding priorities.
Smaller community banks concerned about ability to attract desired deposits.
Community banks with fewer than $1 billion in assets reported some concern about their ability to attract retail deposits, the primary source of funding for these institutions. Only 11% of respondents from these smaller institutions indicated that they expect to be extremely or significantly strong at attracting retail deposits, given the new environment they will be facing in 2016, including regulation and increased competition.
CRE lending seen as priority and greatest strength.
Respondents indicated that they see increasing CRE lending as their greatest strength and top priority for 2016.
Technology adoption seen positively.
Respondents report that they believe customer adoption of digital and mobile banking technology will have a largely positive impact on their business. This follows the results from the second quarter edition of this survey that showed the vast majority of respondents committing additional resources to digital banking technology.
Implementation of big bank rules are a small concern for community banks.
Two-thirds of respondents do not believe Basel III liquidity coverage rules will have any impact on their business.
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