Bankers optimistic despite margin squeeze and deposit competition challenges
By Puja Sharma
Banker Optimism Rises Despite Fears on Margins, Deposit Competition: The squeeze on interest rate margins and the fierce competition for deposits are the biggest issues facing bankers right now, according to a survey released of more than 500 institutions. The survey by liquidity management FinTech IntraFi found that 42% of bankers cited margin compression as the biggest challenge facing their institution this year, while 34% pointed to deposit competition.
“Despite widespread expectations that the Federal Reserve will cut rates in 2024, it is not clear that pressure on net interest margins will ease significantly or that the competition for deposits will cool,” said Mark Jacobsen, CEO and Cofounder of IntraFi.
There was a notable difference in bankers’ views on the largest threats to their bank versus their biggest concern for the industry overall. Only 8% of banks cited concerns about credit quality at their own bank as their biggest challenge. Yet when asked about the biggest issue facing all banks, 34% said credit quality was the most significant worry.
“Many banks feel like they have a good handle on their own loan book, but there are broader concerns about credit quality related to commercial real estate,” said Jacobsen.
Deposit competition, meanwhile, remained the second biggest concern both when asked about their own institution and all banks, with around a third of respondents citing it as the top worry for both questions.
Bank executives are also wary of a number of regulatory policies under consideration. Around 41% cited the Consumer Financial Protection Board’s small business rule as their top policy concern. The regulation requires banks to collect demographic data on small business loan recipients. When asked if the rule would cause their bank to cut back on small business lending, however, 81% said no.
Twenty-one percent said that a CFPB plan to limit overdraft fees was their biggest bank policy concern, while 20% cited a Fed proposal to lower debit interchange fees. Both proposals could potentially impact bank revenue.
There were some bright spots for bankers, however. Around 91% said they expect mortgage demand to grow if the Fed begins cutting interest rates, while a plurality said loan demand will increase in 2024.
- Funding Costs: The number of banks predicting funding costs to keep rising in 2024 has dropped below 50%.
- Deposit Competition: Eighty-one percent said the fight for deposits worsened over the past year, and 55% said it will get worse in the 12 months ahead.
- Loan Demand: Forty-seven percent said loan demand worsened during the past year, but 43% see improvement in the 12 months ahead.
- Access to Capital: Nearly three-fourths of bankers said access to capital has held steady and will continue to do so over the next year.
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