Bankers are most concerned about the impact of the novel coronavirus on commercial real estate and business lending, according to the latest survey of top bank executives by Promontory Interfinancial Network.

Nearly half of the CEOs, CFOs, and presidents of the 557 unique banks that responded to the second quarter survey said that CRE lending is most vulnerable to the economic fallout of COVID-19. Nearly a quarter of respondents said commercial and industrial lending was their top concern, followed by 16% who said consumer lending was most vulnerable.

The survey also found that many bankers believe the impact of the virus will extend beyond next year. More than a third said the business impact would last until 2022 and beyond. Slightly more than a quarter said it would last until the second half of 2021, while 28% said it would extend until the first half of 2021.

"Nearly six months since the virus first started spreading in the U.S., bankers are still trying to grapple with its impact on their customers and business," said Mark Jacobsen, the cofounder and CEO of Promontory Network. "These results show that many believe the impact on the economy will be more pronounced than initially anticipated."

Following are survey highlights:

• Most bankers do not expect the U.S. economy to recover quickly. When asked what shape they expected the economic recovery to take, fewer than one in 10 anticipated a V-shaped economic recovery (the best case scenario outside of no recession at all). Fifty-six percent of respondents predicted a U-shaped recovery from the economic impacts of the COVID-19 pandemic, while 31% expected a W-shaped recovery.
  
  
• Seventy-six percent of respondents reported overall economic conditions for their bank had worsened from 12 months prior. That is 58 points higher than the same point a year earlier. Only nine percent noted economic conditions had improved compared to 12 months prior.
  
  
• Looking to the future, 62% of respondents expected overall economic conditions to be worse over the next 12 months, with 55% predicting moderately worse conditions and another 7% expecting significantly worse conditions. Overall, that is a 34-point increase in respondents who expected conditions to worsen from the same time in 2019.
  
  
• Deposit competition has declined markedly as banks continue to be flush with funding. Fifty-two percent said that deposit competition had decreased compared to 12 months prior, an increase of 28 points from the previous quarter. Nine in 10 respondents said their bank's funding costs had decreased compared to a year prior, with 46% seeing a significant decrease.
  
  
• Four in 10 said they were expanding digital banking services as a result of the crisis. Nearly half indicated their bank was leaning more heavily on reopening branches to the public with limits on in-person activities, while 38% said they would reopen branches without limits. Eighty-eight percent of bankers said that a safe and effective COVID-19 vaccine is not a precondition for their bank to return to precrisis-level operations.
  
  
• More than eight in 10 (83%) reported their bank had attracted new customers via PPP loans, but nearly three-quarters said their bank was not participating or planning to participate in the Main Street Lending Program.
  
  
• With the U.S. economy officially in a recession, 28% of bank respondents indicated their bank is considering delaying the development/rollout of new products and services, and 27% said their bank is considering shrinking the size of its workforce.

OVERALL ECONOMIC OUTLOOK AND PROMONTORY NETWORK INDICES

Promontory Interfinancial Network's proprietary Bank Experience Index^SM (a composite of access to capital, loan demand, funding costs, and deposit competition compared to 12 months prior), measured 56.1, an increase of 3.1 points from the previous quarter. On the metrics that make up Promontory Interfinancial Network's proprietary Bank Confidence Index^SM (a composite of expectations for access to capital, loan demand, funding costs, and deposit competition looking 12 months ahead), this survey found a level of 52.8, an increase of 3.6 points from the previous quarter.

Download the full survey

This is the 22nd survey published by Promontory Interfinancial Network. New data is released every quarter. An archive of previous surveys can be found here.