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BANKERS GLOOMY ABOUT FIRST SIX MONTHS OF NEW YEAR
Rising residential loan demand is only bright spot in latest bank CEO survey
Nearly 44 percent (43.94 percent) of the 139 bank leaders who completed the biannual survey, conducted by the Wisconsin Bankers Association (WBA) in late December and early January, said residential loan demand will go up during the first two quarters of 2009. Another 44 percent said demand will stay the same, while 11 percent said demand will drop.
“There isn’t much good news in this survey,” commented Kurt R. Bauer, WBA president and CEO. “But bankers do predict that interest rates will remain low during the first part of 2009, which is good news for homebuyers and home owners considering refinancing their current mortgage.”
Demand for other benchmark lending categories, including commercial loans and real estate development loans, will drop between January and June 2009. Fifty-four percent of survey respondents say commercial loan demand will drop, 37.8 percent say it will stay the same, and 7.5 percent said it will rise.
Reflecting weakness in the housing sector, 66 percent of bank CEOs say real estate development loan demand will also drop, 28 percent say it will stay the same, and 6 percent said it will grow.
Seventy-four percent of bankers rate
the current health of the
Ninety percent of bankers also believe that economic conditions have yet to “hit bottom” and are still weakening.
The construction and housing-related
industries, followed by small retail stores and auto dealers, have been the
hardest hit by the recession in
Diminished borrower cash flow is the number one reason bankers gave for denying a commercial loan in the last six months. Falling demand for the products or services a business provides has also hurt creditworthiness, along with the declining value of a business’ collateral.
About half of bank CEOs report that their institution has tightened lending standards due to regulatory pressure or to preserve capital. The other half say they have not changed lending standards, but also say that fewer businesses qualify for loans as a result of the economic downturn.
“Banks are lending,” Bauer said. He
Fifty-five percent of survey respondents say businesses in their market area will layoff employees. Not one of the 139 bank CEOs who completed the survey predicts that local businesses will hire workers during the first six months of the year. Similarly, 13 percent said that their bank has reduced its workforce in the second half of 2008 and nearly 14 percent (13.85 percent) plan to eliminate positions in the coming six months.
Given that the banking industry’s profitability directly corresponds with the health of the overall economy, it is not surprising that 48 percent of bankers predict bank earnings will drop in 2009 from the previous year, 36 percent say they will be similar to 2008, and 15.7 percent believe profits will outpace 2008.