Banker Confidence Shifts to Lowest Point Ever as Bank Leaders Project Higher Funding Costs and Stronger Competition from Both Traditional and Nontraditional Players
ARLINGTON, VA (May 14, 2018) – Banker experiences (indexed across four key areas: access to capital, loan demand, funding costs, and deposit competition) over the past 12 months and their overall confidence (indexed across those same four areas) in the next 12 months each hit new lows since Promontory Interfinancial Network began tracking each measure more than three years ago.
In fact, the Bank Confidence IndexSM, which is calculated using the results of Promontory Interfinancial Network’s latest Bank Executive Business Outlook Survey, dropped 4.8 points this quarter from 50.5 to 45.7. (Charted on a scale of 0-100, a score below 50 can be read as contractionary.)
What explains the shift from expansionary to contractionary? The data suggests bankers’ concerns are industry specific. Based on responses bank executives provided in the latest Bank Executive Business Outlook Survey, likely factors include a rising interest rate environment and expectations that the Fed will continue on that path, higher than expected competition for deposits, a growing wariness about competition to come from the nation’s largest banks and fintech companies, and the potential entry of Amazon into the banking space.
Mark Jacobsen, President & CEO of Promontory Interfinancial Network explained, “A record number of bank respondents—76%—faced more competition for deposits over the last 12 months, and 81% reported higher funding costs.”
As to the future, Jacobsen went on to say, “Bankers expect competition to intensify. We asked bankers to rank the threat level associated with each of the following entities on a scale of 1-5, with 1 being the lowest and 5 being the highest: Amazon, which is in talks with J.P. Morgan to offer a product similar to checking accounts; fintechs that compete with banks; the nation’s largest banks; and Goldman Sachs, which launched its new online personal loan platform “Marcus” in October 2016. A whopping 62%, or nearly two out of every three bank respondents, perceived Amazon as a level 4 or 5 disruptor. Additionally, more than 40% responded that fintech companies present a level 4 or 5 threat, and more than a third felt that level of concern from the nation’s largest banks.”
Bankers were also asked what they see as the biggest risk when choosing a fintech with whom to partner. A lack of understanding of regulatory and compliance issues was the top response, followed by the increased risk of data breaches.
Although bankers expressed some concern about the outlook of the banking industry, a majority of bankers (54%) still feel confident about the direction of the economy over the next year.
The latest survey also included a question posed one year ago (in Q1 2017): “Please indicate the area of technology in which you are currently allocating the most budgetary resources.” Survey participants were given seven choices from which to pick: data processing/management/mining, online banking experience, information security, regulatory compliance, fraud detection, online lending, and marketing/outreach. Last year, survey participants selected online/mobile customer banking experience (35%) and information security (36%) as their top priorities. This year, data processing/management/mining moved to the top of the list with 28% of participant responses, while 26% chose online banking experience and 24% chose information security.
For details and other insights, including bankers’ positive reactions to the recently enacted tax reform law and negative reactions to recently announced trade tariffs, please download the latest survey report.
About the Survey
The Q1 2018 Bank Executive Business Outlook Survey was completed online over the course of two weeks, from April 3-April 13, 2018, and incorporates responses from 306 unique banks as provided by CEOs, presidents, and CFOs from across the country. 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. The survey is the thirteenth quarterly survey published by Promontory Interfinancial Network.
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 the largest bank network of its kind, whose “synthetic size” would help each member institution to compete more efficiently. More than 3,000 financial institutions have chosen to be a part of the company’s Network. Network members use Promontory Interfinancial Network’s balance sheet and liquidity management solutions to acquire and retain large-dollar customer relationships, purchase funding, reduce collateralization costs, and buy and sell bank assets.
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