Despite Best Year in a Decade, Bank Executives See Caution Lights Flashing
ARLINGTON, Va., March 6, 2019 /PRNewswire/ -- For community bankers, the 2018 experience was a downward march, culminating in a new low for the Bank Experience IndexSM (access to capital, loan demand, funding costs, and deposit competition now compared to 12 months ago) in Q4—with the sharpest decline coming between Q3 and Q4.
In terms of expectations for the year to come, bankers also showed a decline in enthusiasm with the end result being that Q4 showed the lowest Bank Confidence IndexSM recorded since its inception in 2015.
"Despite the enactment of regulatory reform and continuing good economic news, bankers were concerned about the direction of the industry and the economy in 2018, and they continue to be concerned about what's in store this year," said Mark Jacobsen, cofounder & CEO of Promontory Interfinancial Network.
The findings come from the Bank Executive Business Outlook Survey Report: A Year in Review & What to Expect in 2019, which Promontory Network released today. Respondents' answers to Promontory Network's quarterly Bank Executive Business Outlook Surveys were compiled and analyzed to create a comprehensive view of bank leader experiences over 2018 and their expectations for what's to come in 2019. The firm has conducted the quarterly surveys since the beginning of 2015.
In particular, the firm's proprietary Bank Confidence IndexSM hit the lowest level since the survey began. The Index is calculated by measuring bankers' expectations for the 12 months ahead based on access to capital, loan demand, funding costs, and deposit competition. After ending 2017 at 50.5, the index dropped each quarter in 2018 and ended the year at 43.0, down 15%. (Charted on a scale of 0-100, a score of 50 represents the baseline expectation.)
In addition, banker optimism about overall economic conditions for the 12 months ahead also dropped. Expectations fell throughout 2018 with 65% of respondents expecting improved conditions at the beginning of the first quarter to just 22% predicting betterment at the end of the fourth quarter. That represents a 43-percentage-point decrease in the 12-month outlook (the period that covers 2019). Even so, most bank leaders indicated they do not foresee a recession hitting this year.1
Respondents' other projections for the future included slower growth in loan demand. Although 64% of bankers in Q4 2017 expected an increase in loan demand over the course of 2018, by Q4 2018, the percentage of bankers expecting loan demand to increase over the course of 2019 had dropped to 39%, a 25-percentage-point drop.
Bankers expect access to capital to remain roughly unchanged for 2019. Seventy-four percent think access to capital will remain the same, 9% forecasted a worsening, and only 17% said they expect an improvement.
Funding costs are expected to continue to rise. Eighty-eight percent of bankers―nearly 9 in 10―projected higher funding costs over the coming year. This heightened expectation is in line with 2017 levels, but lower than the 92-95% benchmarks recorded for the first three quarters of 2018.
Expectations for deposit competition have remained relatively stable on a year-over-year basis, though in Q4 2018, the percentage expecting greater competition (83%) was down from higher levels recorded part way through the year (88-90% in other quarters).
For more details and other insights, including geographic breakdowns of these findings, please download the annual survey report.
About the Survey
The Bank Executive Business Outlook Survey is completed on a quarterly basis and incorporates responses from hundreds of unique banks as provided by bank CEOs, presidents, and CFOs from across the country. The survey is published by Promontory Interfinancial Network. Data is released every quarter. Access the Promontory Interfinancial Network Bank Executive Business Outlook Survey reports online.
Bank Experience Index and Bank Confidence Index are service marks of Promontory Interfinancial Network, LLC.
About Promontory Interfinancial Network, LLC
Promontory Interfinancial Network was founded by leading figures in the banking industry—Eugene Ludwig, Mark Jacobsen, Alan Blinder, 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.
1 Promontory Interfinancial Network Bank Executive Business Outlook Survey, Q4 2018
SOURCE Promontory Interfinancial Network, LLC
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