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Board Issues : Growth

What a Difference a Year Makes: Bank Executives’ Optimism Fades on the Economy

August 10th, 2012 |

Bank executives are often in the unique position to get a first-hand view of their local economies, and if the most recent Bank Director and Grant Thornton LLP Bank Executive Survey is any indicator, they do not like what they see.  Only 28 percent of respondents expect an improvement in the local economy in the next six months compared to 44 percent at this time last year, and around twice as many respondents this year expect their local economy to get worse—13 percent compared to 6 percent last year.  The same trend holds true for the national economy with only 13 percent of respondents expecting an improvement compared to 39 percent last year.

The annual survey was emailed in June and July to CEOs, CFOs, and audit committee members from U.S. banks with more than $250 million in assets.  More than 170 bank executives completed the survey, which polled respondents on both the current state and future direction of the banking industry.

With the two year anniversary of the Dodd-Frank Act recently passed, the survey reveals that a slight majority of U.S. bank executives feel they are currently equipped to handle the increased compliance demands brought on by the historic legislation. Still, regulatory compliance burden is the number one concern among survey respondents for the second year in a row—94 percent this year compared to 91 percent last year.  Dorsey Baskin, a partner at Grant Thornton LLP, says that the 54 percent of respondents reporting they are equipped to handle the legislation to date are likely more concerned with the myriad of rules yet to be written.

Fortunately, bank executives as a whole appear to be preparing for whatever is to come.  Sixty-eight percent of respondents have strengthened their loan review procedures in the past 24 months, 59 percent have adopted an enterprise risk management structure, and 21 percent have hired a chief risk officer.  A full 78 percent of respondents are conducting stress testing on an ongoing basis, with 8 percent more expected to start this year.  Additionally, 33 percent of respondents are planning to hire additional staff and 21 percent are planning to hire an advisory firm to meet increased compliance demands. Only five percent of respondents have not begun planning for increased compliance demands.

In what might be attributed to hiring additional staff for compliance, 90 percent of executives expect the number of people they employ at their bank to increase or remain the same in the next six months compared to 85 percent last year. 

The increasingly pessimistic outlook on the economy might explain another chief concern of respondents this year, organic loan demand. Over 90 percent of respondents expect to find growth in organic loan origination in the future, but 67 percent list organic loan demand as a concern for their institution. Baskin says that even though bankers are currently seeing a demand for loans, they are rightly concerned with how long it will last and how far the economy will grow.  “A point might be made that contrary to all of the political discussions of loan growth and lending by the banking industry, the bankers don’t feel like they have enough loan growth opportunity,” says Baskin. “The bankers who are accused of not making loans are sitting here worried about not having loans to make, and that’s how they hope to grow.”  

While bank executives cannot be certain where the economy is headed, they do seem to agree on their presidential pick. When we asked respondents who they are supporting in the upcoming election, they chose Mitt Romney over Barack Obama by a wide margin—79 percent to 8 percent, with 13 percent undecided.   

For access to the full survey results, click here.

rphelps

Robert Phelps writes for Bank Director, an information resource for directors and officers of financial companies, on a variety of topics including growth, compensation, and key industry trends. You can follow him on Twitter @RPBankDirector or connect via Linkedin.

 

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