Bank Leaders Significantly Less Bullish About Loan Growth for 2016
Survey Shares Senior Bank Executives’ Outlook for 2016 and Beyond
ARLINGTON, VA (March 18, 2016) – Results from Promontory Interfinancial Network’s fourth quarter 2015 Bank Executive Business Outlook Survey suggest that C-level bank leaders remain wary about the economy. In particular, respondents’ most recent predictions for future loan growth waned significantly from their prior quarter predictions.
While the majority of respondents still expect loan demand to remain at or above levels recorded for the prior year, the percentage with these expectations has been trending downward. At the end of the first quarter of 2015, approximately 75% of survey respondents expected to see an increase in loan demand over the next 12 months. That number has since fallen, with barely half of respondents reporting that expectation in the most recent survey. (And forecasts were even lower among community banks with between $1 billion and $10 billion in assets; among this group, just 36% believe their institutions will see an increase over the next year.) In tandem with this finding, the percentage of respondents who anticipate a decrease in loan demand is at its highest level since the first survey was launched a year ago.
Additional insights from the latest Bank Executive Business Outlook Survey of bank CEOs, presidents, and CFOs, include:
Banks expect Commercial Real Estate (CRE) loans to continue to play an outsized role in lending and answers for diversifying remain unclear. CRE loans have been steadily growing as a percentage of community bank lending portfolios over the past 15 years, rising from an average of 20% in 2001 to over 30% by the end of 2015, while other loan types continue to dwindle in their share of loan portfolios. On average, respondents indicated that they expect CRE loans to make up around 38% of their lending portfolios over the next 12 months, compared to their preferred allocation of 35%. Meanwhile, both C&I and consumer loans are expected to comprise a smaller percentage of their lending portfolios than they would like. This may be driven by the ongoing decrease in yields on nonconsumer loans, which hit a 15-year low of 7.1% in 2015.
Wholesale funding is expected to fill a small gap in deposit funding over the next 12 months. Even though wholesale funding costs have risen, banks (in the aggregate) expect to rely more on wholesale funding than they consider ideal. Asked to identify their preferred funding mix and their expected funding mix for the 12 months ahead, respondents indicated that they anticipate being about 4% short of their ideal volume of corporate deposits and about 1% below their target for retail deposits. To close this gap (about 2% of overall funding), banks indicated that they would rely on nondeposit funding, increasing this category to nearly 9 percent of their funding mix.
For more details about anything noted above or to read what bankers expect with regard to industry consolidation, the impact of the December Fed rate increase on funding costs, and their view of the role reciprocal deposits play at their bank, please download the latest Bank Executive Business Outlook Survey report.
About the Survey
The survey was completed online in January 2016 by 175 senior bank leaders in the positions of CEO, president, or CFO. Respondents were almost entirely from 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.
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Promontory Interfinancial Network, LLC