US bank executives pessimistic about local, national economic growth

Bank executives in the United States do not have high expectations for improvement in their local economies. Most are counting on an increase in loans as their chief method of growth. But with skittish customers remaining tight with their money despite historically low interest rates, bankers cite low demand for loans as a top concern.

Just 27.5% surveyed by Grant Thornton in June and July expect improvement in their local economy in the next six months, a drop from 44% a year ago. Their view of the national economy is also dim: 20% expect it to get worse, while just 13% expect it to improve in the next six months. A year ago, 39% expected improvement.

“As global economic recovery has slowed to the point of stagnation, bank directors have become more cautious about forecasting local or national growth,” Nichole Jordan, national banking and securities industry leader at Grant Thornton, said in a news release. “Recent numbers from indicators such as job growth and unemployment have been underwhelming, tempering last year’s expectations, which formed during a period of more positive economic outlook.”

Ninety per cent expect the number of employees to stay the same or increase, a potential bright spot in the survey. Plans for staff increases appear to be driven in part by bankers’ top worry – regulatory compliance.

Regulatory compliance was the top concern in the survey (94%) (respondents could pick more than one concern). While 54% of executives said they are equipped to address compliance standards of the US Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, 33% plan to hire additional staff to meet compliance demands.

Margin pressure because of low interest rates is the second top concern (88%), followed by organic loan demand (67%), exposure to loan losses (44%) and retention of quality talent (33%).

A strong majority (91%) listed loan origination as the top driver of future growth. Traditional merger (39%) was a distant second.

Related CGMA Magazine content:

“European CFOs’ forecast far gloomier than that of US counterparts”: US CFOs expect unemployment to fall in the US. European CFOs see a bleaker picture, with double-digit unemployment and few staffing increases. More than half of US CFOs surveyed expect their companies to add staff.

—Neil Amato (namato@aicpa.org) is a CGMA Magazine senior editor.