Banker Confidence Index Dropped Leading up to Election
C-Suite Executives Predict Increase in Balance Sheet Pressures as Funding Costs are Expected to Rise
ARLINGTON, VA (December 14, 2016) – In responses captured the week prior to the presidential election, bank leaders indicated that they expected to see a worsening in all four components that comprise Promontory Interfinancial Network’s Banker Confidence IndexSM (access to capital, loan demand, funding costs, and deposit competition).
This meant that, for the first time since March of 2016, Promontory Interfinancial Network’s Banker Confidence IndexSM decreased. It dipped by a full two points (from 52.1 to 50.1) over the prior quarter’s survey results, indicating that bankers were more cautious about their prospects for the coming year. The new level of 50.1 is just barely expansionary (any level above 50 can be understood as expansionary). Promontory Interfinancial Network conducted the survey right before the Presidential election and survey results were based on responses from C-level executives from banks across the nation.
Higher funding cost expectations drove the overall decline in the confidence index. At the end of the third quarter, 71% of senior bankers reported that they expected funding costs to increase in 2017. By comparison, at the end of the second quarter, only 53% of respondents expected to see funding costs rise in the coming year.
Given the unexpected results of the presidential election, the Banker Confidence Index likely understates current banker enthusiasm for the year ahead. The ABA Bank Index (ABAQ), an index representing community banks and banking institutions has risen 27% since November 8th showing that from an investor perspective at least, the new administration is expected to have a positive impact on bank performance.
Much of that boost is expected to come from a shift in the regulatory environment. Whether the transition to a new administration also has a substantive impact on the fundamental factors that impact bank balance sheets (availability of capital, loans and funding), will be something that Promontory Network’s survey will be tracking going forward.
“Even in a shifting regulatory environment, the fundamentals are still likely to drive overall bank performance,” said Mark Jacobsen, CEO of Promontory Interfinancial Network. Whether loan demand outpaces funding costs as rates rise is an immediate question for banks to consider.”
Approximately 61% of respondents expect to see loan demand grow in the coming year, a similar response from last quarter when 62% expected growth in loan demand. Less than 3% expect growth in loan demand to be significant.
The quarterly Bank Executive Business Outlook report can be downloaded here.
About the Survey
The survey was completed online at the end of October by 152 senior bank leaders in the positions of CEO, president, or CFO at banks with less than $10 billion in assets. Compared to the asset-size distribution of the banking industry, responses were slightly weighted toward banks with between $1 billion and $10 billion in assets.
About Promontory Interfinancial Network, LLC
Promontory Interfinancial Network was founded by leading figures in the banking industry—Eugene Ludwig, Alan Blinder, Mark Jacobsen, and Alfred Moses—to provide financial institutions with profit-enhancing solutions. The founders envisioned a network, composed of thousands of financial institutions, whose “synthetic size” would help each member institution to compete more efficiently. Promontory Interfinancial Network has been chosen by more than 3,000 banks nationwide. These members use Promontory Interfinancial Network’s balance sheet and liquidity management solutions to acquire and retain large-dollar customer relationships, purchase funding, manage liquidity, reduce collateralization costs, and buy and sell bank assets.
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