Bankers Optimistic on Impact of Potential Rate Increase; Concerned about Deposit Gathering and Nonbank Lenders
Survey Shares Senior Bank Executives’ Outlook Leading Up to Year End
ARLINGTON, VA (December 15, 2015) – More than half of respondents to the Promontory Interfinancial Network, LLC (“Promontory”) recent quarterly Bank Executive Business Outlook Survey stated that an interest rate increase would have a positive impact on their banks.
Optimism about an interest rate increase comes even as banks understand that the increase could impact profit margins, at least in the short term.
“While we learned that banking leaders are generally optimistic about the future, there are key concerns,” said Mark Jacobsen, President and CEO at Promontory. “Anxiety comes from increased need and competition for deposit funding and the growth of nonbank lenders.”
The greatest area of concern among bank executives is the growth of nonbank lenders. More than 80% of the respondents indicated that the continued growth of nonbank lenders in 2016 would have a negative impact on their institutions, with a quarter of all respondents indicating that the negative impact to their institutions would be significant.
Retail deposits remain a focus, but there are concerns about capability. Bankers identified retail deposits as their highest ranking funding goal, with 23% of all respondents rating attracting retail deposits as their top priority overall on a list of nine lending and funding categories. However, there is some concern about whether community banks will be able to attract sufficient retail deposits to support their lending. When asked to assess their organization’s strength on a number of banking activities, only 13% of all respondents indicated that they expect to be significantly or extremely strong at attracting retail deposits in 2016. That number drops to 11% among respondents from institutions with fewer than $1 billion in assets.
Expectations for loan demand continue to moderate. While the majority of bankers still expect an increase in loan demand, fewer expect growth to continue at the same pace as it has in the past year. In Q1 2015, 71% of respondents expected loan demand to increase in the next 12 months and by Q3, that number dropped to 54%. This is not to say that bankers expect to see a decrease in loan demand, just that growth is moderating. Indeed, only 10% of bankers reported that they expected to see a decrease in loan demand over the next 12 months.
Additional insights from Promontory’s Q3 2015 Bank Executive Business Outlook Survey with bank CEOs, presidents, and CFOs, include:
- Community Banks prioritize Commercial Real Estate (CRE) lending and deposit gathering. Community banks consider CRE lending their biggest strength and their highest priority. Out of nine possible lending and funding activities, 37% of respondents indicated that they expect their banks to be significantly or extremely strong at increasing CRE lending. Nearly 60% of respondents rated CRE lending among their top three priorities for 2016, making it the most frequently-rated, high-priority activity of the nine lending and funding activities that were presented.
- Bankers expect investments in digital technologies to pay off. In Promontory’s Q2 survey, respondents indicated that they were making significant investments in new technology. Now, as they look forward to 2016, nearly two-thirds of respondents indicated that technological adoption by customers would have a positive impact on their institutions.
- Community banks are unconcerned about rollouts of LCR and MMMF rules in 2016. While 2016 will be a big year in banking regulation rollouts, with the next-stage implementation of the liquidity coverage ratio and new money market mutual fund rules, most community bank respondents report that regulation changes will have a negligible impact to them. Specifically, 66% of respondents indicated that LCR will have no impact on them, while 58% of respondents reported that they expect no impact from MMMF reforms.
For more analysis of the results, download the Bank Executive Business Outlook Survey report at http://promnetwork.com/home/news/business-outlook-survey/business-outlook-survey-2015-q3
About the Survey
The survey was completed online at the end of October 2015 by 207 senior bank leaders in the positions of CEO, president, or CFO. Respondents were almost entirely at community banks with fewer than $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. Today, Promontory’s Network of participating institutions includes approximately 3,000 members nationwide. These members use Promontory's services to acquire and retain large-dollar customer relationships, purchase funding, manage liquidity, reduce collateralization costs, and buy and sell bank assets.
Senior Vice President,
Promontory Interfinancial Network, LLC