Although credit quality continues to hold steady, bankers are pessimistic about economic conditions for their institutions amid fears the Federal Reserve will wait until late next year to begin lowering interest rates, according to a new survey of bank executives released today by fintech IntraFi.
The survey, which garnered responses from bank CEOs, presidents, CFOs, and COOs at nearly 600 unique banks nationwide, found that nearly half of respondents said economic conditions at their bank deteriorated over the past 12 months, and only 12% said they expect it to improve in the year ahead.
Their views appear influenced by high interest rates, with 60% predicting the Fed will not begin lowering rates until the second half of 2024. An additional 22% said the Fed will not decrease rates until at least 2025.
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“Bankers’ views on the U.S. economy have been consistently negative for most of the year,” said Mark Jacobsen, Cofounder and CEO of IntraFi. “This sentiment seems unlikely to change barring a major shift in Fed interest rate policy.”
Bankers have not yet seen a decline in credit quality, however. Fifty-nine percent of respondents said they did not see higher delinquencies in the third quarter compared to a quarter earlier, while nearly three-quarters said they did not experience higher charge-offs. Of those bankers who saw declines, 17% cited higher delinquencies on residential mortgages, while 13% cited emerging problems in office-related commercial real estate.
The survey also delivered a surprising verdict on a proposal by federal regulators to raise capital requirements at the largest banks by roughly 20%. While bank trade groups have argued that the plan would force business to lightly regulated nonbanks, 39% of survey respondents said regional and super-regional banks would benefit the most if the capital proposal is finalized. An additional 37% said community banks would see the most gains. Only 19% said fintechs would be the largest beneficiaries.
Other Highlights
- M&AÂ –Â Only a quarter of respondents said they were looking to acquire another institution in the next 12 months, while 4% said they were hoping to be acquired in that time.
- Funding Costs – Ninety-five percent of banks reported higher funding costs over the past 12 months, and 77% foresee tougher competition over the next year.
- Deposit Competition – Ninety percent of banks experienced greater deposit competition over the last 12 month, and more than three-quarters expect more competition over the next year.
- Loan Demand – Loan demand remains soft according to nearly half of all bankers surveyed, and 43% said that will be the case over the next 12 months.
- Access to Capital – Seventy-two percent of bank executives expect access to capital to remain steady over the next 12 months.
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