Bankers See Weak Loan Demand Amid Increased Deposit Competition
Tuesday, February 7th, 2023
With a possible recession looming, bankers have already seen loan demand fall—and they expect it to keep dropping, according to a new survey released today by IntraFi.
The survey—which polled the top executives at 449 banks nationwide—found that a slight majority said loan demand had decreased over the past year, a 23-percentage-point jump from a year earlier. Only three in 10 noted a rise during that same period. Looking ahead over the next 12 months, 53% said they expect loan demand to fall further, a 41-point increase from the same question a year ago.
"Banker expectations regarding loan demand reversed direction in 2022," said Mark Jacobsen, CEO and Cofounder of IntraFi. "They see loan demand decreasing this year partly because of a belief that a recession is highly likely, and there has already been a softening market for credit."
With interest rates at their highest level since 2007, banks are also seeing heightened competition for deposits—and facing the prospect it may get even tougher. Eighty-eight percent of bank executives who responded to the fourth quarter survey said deposit competition worsened over the past 12 months, an 81-point jump from a year earlier. Eighty-four percent said they expect competition to increase over the next 12 months, a 43-point increase from a year ago.
As a result, many banks have begun to raise their own rates to retain existing deposits and attract additional funding. At least 94% of survey respondents increased rates on deposits in some manner. Thirty-six percent hiked rates on all deposits, while another 18% increased rates according to customer type. Sixteen percent of respondents said they increased rates on time deposits, while 12% increased rates based on deposit size, and an equal number said they increased rates when a customer was ready to leave.
The battle over deposits comes as the vast majority of bank respondents expect a recession to hit soon. Seventy percent believe a recession will occur sometime this year, while 24% of those surveyed said a recession has already started. Despite increased confidence in how the Federal Reserve is managing inflation, two-thirds of respondents said that the U.S. economy is headed toward a harder landing than expected. Fifty-eight percent predict economic conditions for their institutions will worsen over the next 12 months, a 38-point increase from a year earlier.