Bank CEO confidence grows, still limited by interest rates

Bank CEO confidence improved this month but remained limited amid high interest rates and weaker commodity prices, according to Creighton University’s monthly survey of bank CEOs in rural areas of a 10-state region. 

The Rural Mainstreet Index increased to 48.1 from 41.7 in December. RMI tracks the sentiments of bank CEOs in rural areas in the central states dependent on agriculture and/or energy. The index stayed below 50 for the fifth straight month even as farmland prices expanded. 

“Higher interest rates, weaker agriculture commodity prices and a credit squeeze are having a significant and negative impact on Rural Mainstreet businesses and on Rural Mainstreet farmers,” said Ernie Goss, Jack A. MacAllister chair in regional economics at Creighton University’s Heider College of Business. 

The index tracking farming and ranching land prices fell to 64 from 67.2, which Goss said indicates strong but slowing growth in farmland prices. The index hasn’t fallen below 50 since November 2019. “Higher borrowing costs, tighter credit conditions and weaker grain prices pushed the farm equipment sales index below growth-neutral for the seventh time in the past eight months,” according to the report. 

Bankers stayed pessimistic about the potential for economic growth over the next six months, with the related index falling to 38.5 from 43.3 in December. “Falling agriculture commodity prices and higher interest rates over the past several months continued to constrain business confidence,” according to the report.  

January’s index for loan volumes fell to 71.9 from 80.9 in December, while the index for checking deposits grew to 62 from 41.4. The index for certificates of deposits and other savings instruments fell to 62 from 65.5 in December.

The index for both home sales and retail sales have fallen below 50 for the last three months. The January index for home sales fell to 38 from 43.3 in December as high mortgage rates and limited housing supplies continued to limit positive sentiments. The retail-sales index dropped to 46.0 from 46.6 in December. “High consumer debt and elevated interest rates are cutting into retail sales in rural areas of the region,” Goss said. 

 Bank CEOs on average estimated that one-quarter of farm clients will face transition-related challenges in the next decade. CEOs expect that more than half of farmers transitioning in the next decade to transfer ownership to heirs, while 42.3 percent anticipate selling to other farmers in the area. 

The states covered by the RMI survey are Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming.