The Banking Sector

Banker Optimism Rises Despite Fears on Margins, Deposit Competition

It is not clear that pressure on net interest margins will ease significantly

ARLINGTON, Va., Feb. 6, 2024 /PRNewswire/ — 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 Tuesday 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.

Broader Concerns About Credit Quality

“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. Forty-one percent 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.

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...

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. Ninety-one percent said they expect mortgage demand to grow if the Fed begins cutting interest rates, while a plurality said loan demand will increase in 2024.

Other Highlights

  • 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.

 

 

IntraFi’s Fourth Quarter Bank Executive Business Outlook Survey garnered responses from CEOs, presidents, and CFOs at 501 unique banks across the country. Download the full report.
About IntraFi
A trusted partner chosen by more than 3,000 financial services companies, we define success not by the volume of transactions we enable, but by the quality of relationships we form. Our network, established over 20 years ago, connects institutions of all sizes to help participants build stronger relationships with their customers, fund more loans, seamlessly manage their liquidity needs, and earn fee income. The network brings scale, giving each participant access to tens of billions of dollars in funding, the highest per-depositor and per-bank capacity, and the peace of mind of being able to make large-dollar placements.

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