Bank Executive Business Outlook Survey

2015, Q1

The banking sector has experienced a period of unprecedented structural change in recent years. Today’s bankers contend with a myriad of challenges, including post-crisis regulations, a more demanding consumer, and new competition from inside and outside of the industry. In this context, Promontory Interfinancial Network’s inaugural Bank Executive Business Outlook Survey asked senior bank executives a series of questions on how they viewed prospects for the industry, and how they compare to the past year.

The Bank Executive Business Outlook Survey was conducted from March 2 through March 16, 2015. Over 316 financial institutions responded, with a total of 278 surveys being fully completed. It is clear that the perspectives of today’s bankers have been forged by seven years of economic, financial, and regulatory upheaval. Nevertheless, the industry as a whole remains optimistic (albeit cautiously so) about the future and does see both the demand for loans and deposits picking up over the next 12 months. Here are some of the key findings of the survey:

  • Loan growth remains priority one.Banks indicated that, on average, loan growth is 75% more important than any other area of focus. Most banks will continue to rely on commercial real estate to be the chief source of lending. However, there is variation by asset size. Respondents from larger community banks, banks with assets between $1 billion and $10 billion, showed greater interest in commercial and industrial loans (C&I) in addition to the use of participations, either as the originating or participating institution.

  • A large majority of banks expect continued growth in lending. A significant number of banks have experienced a modest increase in loan demand over the past 12 months, and even more expect growth next year. However, the degree of the increase is predicted to be modest.

  • Most banks expect current depositors to be the primary source of funding for the next 12 months. Competition is rising for deposits, but, at least for the near term, most banks expect to meet their funding needs primarily through their existing deposit base, in particular, from existing retail and corporate customers rather than competing for new customers. However, banks between $1 billion and $10 billion in assets expect to compete more aggressively by wooing new customers from competitors as a secondary source of funding.

  • Funding costs will change direction. Funding costs have reached historic lows since the onset of the financial crisis. This past year, only 13 % of banks reported an increase in funding costs. But nearly two-thirds of banks expect their cost of funds to rise in the next twelve months.

  • The horse race for deposits is at the starting gate. Deposit demand has been soft for several years, but bankers believe that is about to change--and soon. The survey indicates a sizable majority of bank executives believe that deposit competition will grow in the next 12 months and the charge will be led by larger banks.

  • Banks are preparing for rising rates. Once funding costs begin to rise, most banks in our survey plan to rely on higher lending rates to keep ahead of higher funding costs.

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