Bank Executive Business Outlook Survey

2016, Q1

A year ago when Promontory Interfinancial Network’s Bank Executive Business Outlook Survey was launched, the banking sector was generally bullish about the future of the industry. The prospect of Fed rate hikes and evidence of a rise in lending demand gave hope of a “return to normalcy” for the financial sector.

While the Fed did raise rates over the past year, it happened only once and was limited to 25 bps. And, while loan portfolios have experienced recent growth, there has also been a notable decline in performance.1

A year later, banks are more cautious in their expectations for the next 12 months, according to Promontory Interfinancial Network’s Q1 2016 Bank Executive Business Outlook Survey, which includes the responses of CEOs, presidents, and CFOs of 239 banks across the country.

The expectations of respondents is quantified in Promontory Interfinancial Network’s recently launched Banker Confidence Index. The index shows mild optimism for the year ahead, although respondents’ experiences over the last 12 months haven’t lived up to their expectations.

When we dig deeper into the numbers, we can see why banks are hedging their bets on the next 12 months. Last year, a majority of survey respondents expected access to capital and loan demand to improve moderately and funding costs and deposit competition to measurably increase. However, responses on bank actual experience shows that banks have seen only minimal improvements in access to capital and loan demand, while the expected rise in funding costs and deposit competition was marginal.

There are a multitude of possible reasons that banker expectations did not match results. While the U.S. economy continued to grow and the unemployment rate dropped, questions about China’s economic condition, stagnation in Europe, and uneven conditions at home were among a possible set of factors that prompted the Fed to only raise rates once.

Lending growth remained the top priority when aggregated across all respondents, (around 27% of respondents listed loan growth as their highest priority). However, this year, there’s a significant difference between the responses of leaders from larger community banks (those with between $1 billion and $10 billion in assets) and smaller banks (those with less than $1 billion in assets). Smaller community banks continue to focus primarily on a mix of loan and deposit growth, while at large community banks responding to regulatory requirements has grown significantly in importance.

This year, larger community banks assigned, on average, 13% of attention and resources to responding to regulatory requirements. This is 27% more value than banks of the same asset size assigned to regulatory requirements last year, which may be related to the increase in regulations that have been proposed and implemented in the past year.

This quarter’s survey also included a focus on technology, with the following findings:

  • Most respondents identified the adoption of mobile banking as the most successful technology upgrade they have made over the past two years.
  • The adoption of new customer-facing banking applications, such as mobile and online banking, was seen as the area of technology that is likely to have the most dramatic impact on banks moving forward, ahead of a number of other areas such as payments, security, or marketing technology.
  • Customer security is the top priority when it comes to considering the adoption of new technology. This response comes in the wake of high-profile data breaches and hacking scandals at both U.S. and European banks.
  • Banks—in particular larger banks—are showing moderate interest in automated underwriting technology solutions. The chief obstacle? Perceived lack of customer demand.

1 FDIC Statistics on Depositor Institutions, Q1 2016

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Bank Executive Business Outlook Survey

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