Banker confidence dips as competition and interest rates rise

Bank CEOs, presidents and CFOs from across the nation reported lower confidence levels in their industry. Specifically, they expressed concern about rising interest rates, competition from the big banks, fintech companies and Amazon. That’s according to the first quarter Promontory Interfinancial Network’s Bank Executive Business Outlook Survey.

The Bank Confidence Index level dropped 5 points to 45.7 from 50.5 since last quarter. The index tracks banker expectations in access to capital, loan demand, funding costs, and deposit competition, calculated by the study results.

In February, the fourth quarter report indicated a rising confidence level across the board, and president and CEO of Promontory, Mark Jacobson, hoped the optimism would counter the impact of high interest rates. This quarter, the confidence level is lower than it’s been since the survey began three years ago.

Responses suggest that bankers expect the Fed will continue its path toward rising interest rates, and that competition for deposits will be higher than expected. In the past 12 months, a record number of reported bankers, 75 percent, experienced more competition for deposits. Four of every five respondents faced higher funding costs.

There’s also a growing wariness about the nation’s largest banks and digital competition. Amazon, which is collaborating with J.P. Morgan to create a checking-account feature, was perceived as a high-threat disruptor by almost two of every three bank executives who responded to the survey.

One third of respondents felt the same level of threat by the nation’s largest banks, such as Goldman Sachs, which launched its online personal loan platform “Marcus” in October 2016.

Forty percent of bankers ranked fintech companies at threat-levels 4 and 5 on a 1 to 5 scale. Respondents said the biggest risks when partnering with fintech companies were a faulty understanding of regulatory and compliance issues and, to a lesser degree, the risk of data breaches.

“Bankers expect competition to intensify,” Jacobson said.

When it comes to allocating their budget to digital technology, 30 percent of bankers are focusing on data processing, management and mining. One fourth are investing in the online banking experience, and another quarter of respondents are funding their information security. This trend changed from a year ago, when funding either a mobile customer experience or information security was 70 percent of respondents’ top digital priority.

Despite the expressed concerns about the banking industry, 54 percent of bankers are optimistic about the direction of the economy in the next year.

The first quarter 2018 Bank Executives Business Outlook Survey was completed after two weeks of online responses by CEOs, presidents and CFOs from 306 banks across the nation. Compared to the asset-size distribution of the banking industry, responses were weighted slightly toward banks with $1 billion to $10 billion in assets.