Bankers See Weak Loan Demand Amid Increased Deposit Competition

Most bank respondents predict loan demand will continue to fall in the year ahead

ARLINGTON, Va., Feb. 6, 2023 /PRNewswire/ -- With a possible recession looming, bankers have already seen loan demand fall—and they expect it to keep dropping, according to a new survey released today by IntraFi.

The survey—which polled the top executives at 449 banks nationwide—found that a slight majority said loan demand had decreased over the past year, a 23-percentage-point jump from a year earlier. Only three in 10 noted a rise during that same period. Looking ahead over the next 12 months, 53% said they expect loan demand to fall further, a 41-point increase from the same question a year ago.

"Banker expectations regarding loan demand reversed direction in 2022," said Mark Jacobsen, CEO and Cofounder of IntraFi. "They see loan demand decreasing this year partly because of a belief that a recession is highly likely, and there has already been a softening market for credit."

With interest rates at their highest level since 2007, banks are also seeing heightened competition for deposits—and facing the prospect it may get even tougher. Eighty-eight percent of bank executives who responded to the fourth quarter survey said deposit competition worsened over the past 12 months, an 81-point jump from a year earlier. Eighty-four percent said they expect competition to increase over the next 12 months, a 43-point increase from a year ago.

As a result, many banks have begun to raise their own rates to retain existing deposits and attract additional funding. At least 94% of survey respondents increased rates on deposits in some manner. Thirty-six percent hiked rates on all deposits, while another 18% increased rates according to customer type. Sixteen percent of respondents said they increased rates on time deposits, while 12% increased rates based on deposit size, and an equal number said they increased rates when a customer was ready to leave.

The battle over deposits comes as the vast majority of bank respondents expect a recession to hit soon. Seventy percent believe a recession will occur sometime this year, while 24% of those surveyed said a recession has already started. Despite increased confidence in how the Federal Reserve is managing inflation, two-thirds of respondents said that the U.S. economy is headed toward a harder landing than expected. Fifty-eight percent predict economic conditions for their institutions will worsen over the next 12 months, a 38-point increase from a year earlier.

Other key findings included:

• Deposit Competition—Four in five (84%) bank executives predict deposit competition will increase over the next 12 months. Only 3% expect a decrease while 13% expect the situation to remain the same.
  
  
• Funding Costs—Survey respondents who reported higher funding costs rose to 94%, an 11-point increase from the third quarter and an 86-point increase a year earlier. Nearly 90% predict funding costs will increase over the next 12 months, a 26-point increase from a year earlier.

This survey was conducted online over the course of two weeks from January 3-17.

To read the report in its entirety, please visit our website.

About IntraFi

Chosen by thousands of financial institutions, fintechs, and brokerage firms since its founding more than two decades ago, IntraFi manages the nation's largest bank deposit network. Its services help customers acquire high-value relationships, fund more loans, seamlessly manage liquidity needs, and earn fee income. As the nation's #1 provider of reciprocal deposit solutions and a leading provider of overnight and term funding options, IntraFi, trusted by over 3,000 financial institutions nationwide, delivers large dollar deposit and liquidity management services. 

SOURCE IntraFi