Banks Forecast Weaker Economic Conditions Amid COVID Crisis
Survey is first to detail how economic first responders are reacting to crisis
ARLINGTON, Va., May 18, 2020 /PRNewswire/ -- Banks have grown markedly more pessimistic about the economy in the wake of the spread of the novel coronavirus with a sizable number now concerned about access to capital during the coming year, according to Promontory Interfinancial Network's latest survey of bank executives.
In a survey of bank CEOs, CFOs, and presidents from 515 unique banks across the country, bank leaders did see some positive signs, however. Funding costs decreased as banks witnessed a massive influx of deposits in the first quarter. Competition for deposits also declined as domestic deposits surged by more than $1 trillion during the first quarter.
The survey also details the significant actions banks have taken in response to the spread of COVID-19, including closing branches, requiring employees to work from home, and offering workout arrangements for customers. The survey is one of the first to detail how economic first responders are reacting to the crisis.
"In times of difficulty, banks are there for their customers—and the COVID crisis is showing that," said Mark Jacobsen, CEO of Promontory Interfinancial Network. "Bankers have grown understandably more pessimistic about the economy in the past few months. But with deposits flooding into the system and funding pressures decreasing, they appear to be in excellent shape to provide assistance to borrowers."
Promontory Interfinancial Network conducted the Q1 Bank Executive Business Outlook Survey from April 2 to April 15, 2020. Banking executives from 515 unique banks responded to the survey and represent more than 10 percent of the banks in the country. The full survey can be found here.
Following are survey highlights:
- Eighty-one percent of respondents reported that overall economic conditions were worse compared to a year earlier—an extraordinary 70-point jump from the last quarter. Looking to the future, three-quarters of respondents expected economic conditions over the next 12 months to be worse. That represents a 59-point increase from the previous quarter.
- In response to U.S. economic conditions, 63% indicated their banks would consider delaying the development or rollout of new products and services, while slightly more than half said they would consider freezing salaries.
- On the positive side, more than eight in 10 said their bank's funding costs decreased compared to 12 months prior with 30% seeing a significant decrease. Two-thirds expected their bank's funding costs to decrease in the next 12 months. Their views are likely impacted by the recent surge in deposits at commercial banks, which jumped by more than $1.8 trillion to more than $15 trillion as of the end of April.
- As deposits have risen, bankers are no longer seeing heightened competition for them. Bankers reporting an increase in competition for deposits plummeted by 62 points, to 20%, from the same point in 2019. The number saying it stayed the same compared to 12 months prior jumped to 57%, an increase of 20 points from the previous quarter and a 41-point jump from the first quarter of 2019.
- Capital access remains a worry for some, however. The number of banks saying access to capital worsened during the previous 12 months increased by 21 points from the previous quarter to 23%. While six in 10 said they expected their bank's access to capital to be the same in the coming 12 months, 32% predicted it will be worse – a 29-point jump from the fourth quarter of 2019.
- Banks continue to help customers. Ninety-seven percent of leaders surveyed said their banks offered loan mitigation to customers affected by the crisis. Nearly three out of four said their banks offered emergency loans to affected customers and businesses. More than two-thirds reported that their bank added extra cash to ATMs.
- Only 3% indicated that their banks plan to furlough workers temporarily, and just 1% said their banks laid off employees permanently.
- Nearly two out of three said the guidance regulators provided to banks related to the crisis was sufficient, while 35% said they needed more information on how to handle customers and operations.
- Two-thirds of bankers said they believed the Fed would not introduce negative interest rates, while nearly one in four said it is very or somewhat likely.
PROMONTORY NETWORK INDICES
Promontory Interfinancial Network's proprietary Bank Experience IndexSM (a composite measure of access to capital, loan demand, funding costs, and deposit competition now compared to 12 months prior) hit 53.0 this quarter, an increase of 1.6 points from the previous quarter. Promontory Interfinancial Network's proprietary Bank Confidence IndexSM (a composite measure of access to capital, loan demand, funding costs, and deposit competition for the 12 months ahead) measured 49.2, falling 3.7 points from the previous quarter. The biggest change came in respondents' views of overall economic conditions.
This is the 21st survey published by Promontory Interfinancial Network with new data released every quarter. An archive of previous surveys can be found here.
About Promontory Interfinancial Network, LLC
Promontory Interfinancial Network – the inventor of reciprocal deposits and the nation's largest deposit allocation service provider – provides dynamic, all-weather balance sheet and liquidity management solutions to help financial institutions grow franchise value. The company, chosen by thousands of banks since its founding nearly two decades ago, has assembled the largest bank network of its kind. Its service offerings help institutions to acquire high-value, local relationships; purchase funding; and reduce collateralization costs.
SOURCE Promontory Interfinancial Network, LLC
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