Bank executives cite concerns about loan demand, funding costs
Nearly three quarters of bank executives are doubtful the Federal Reserve can keep the economy from sliding into a recession, according to a survey released by IntraFi.
Bankers’ skepticism comes at a time when many economists are increasingly optimistic about the prospects for the economy. Yet only 27% of executives from the 545 unique banks represented in the survey said they believe the Fed will guide the economy to a so-called soft landing.
“Bankers are understandably a cautious group,” said Mark Jacobsen, Cofounder and CEO of IntraFi, a leading fintech that provides reciprocal deposit services and other services to banks. “Many bank executives are dealing with challenges on the ground, such as rising funding costs, weaker loan demand, and tougher deposit competition, that makes them skeptical about the underlying strength of the economy.”
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Bankers’ pessimism was reflected in many of the survey’s results. For example, despite relatively low unemployment rates and modest economic growth, only 11% of respondents said the overall economic conditions for their bank have improved over the last 12 months. Fifty-five percent foresee economic conditions continuing to worsen for their bank through at least next summer.
One area where they were not as worried is commercial real estate loans tied to office buildings. Though vacancy rates for these buildings remain at record highs, 61% of banks said they are not concerned they have too many CRE loans on their books. Seventy-one percent said office CRE loans make up less than 10% of their Tier 1 capital, while another 18% said they make up between 10% to 30%.
The Fed launched its real-time payment system FedNow late last month, but only 23% of respondents said their bank would adopt the new payment system, with 29% indicating they plan to opt-out. Forty-eight percent of banks are undecided.
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Other Highlights
- Funding Costs — A high of 97% of banks are experiencing greater funding costs.
- Interest Rates — If the Fed continues to raise rates this year, 64% of bank respondents believe some of that increase will pass through to depositors in the form of higher yields on interest-bearing accounts.
- Deposit Competition — Almost 93% of bankers say deposit competition has increased, a new record for this survey.
- Loan Demand — Fifty-two percent of all banks have experienced a decline in loan demand.
- Access to Capital — Seventy-two percent of bankers said they expect no change to access to capital over the next twelve months.
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