From: WBA News Release []
Sent: Tuesday, January 20, 2009 3:09 PM
To: info_wrn

FOR IMMEDIATE RELEASE                                                        January 20, 2009

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Rising residential loan demand is only bright spot in latest bank CEO survey

(MADISON) – Low interest rates will spur a modest uptick in residential mortgage demand during the first six months of 2009, according to the latest Wisconsin Bank CEO Economic Conditions Survey. But overall, a majority of bankers rate the Wisconsin economy as just “fair” and also believe conditions are still weakening.

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 Wisconsin economy as “fair,” 16.7 percent rate the state’s economy as “poor,” and just 9 percent say the economy is “good.” This is the lowest statewide economic rating since the WBA survey began in 2004. Bankers rated local economic conditions slightly higher.

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 Wisconsin, according to the survey. Agriculture and non-restaurant food-related businesses have faired the best so far.

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 noted that Wisconsin banks have a 112 percent loan-to-deposit ratio, meaning banks are lending 12 percent above their total deposits. Third quarter performance numbers issued by the FDIC also showed an increase in total loans in Wisconsin. “This recession was caused by non-bank lenders extending credit to un-creditworthy consumers and businesses. Doing more of the same, as some lawmakers and pundits suggest, will make a bad situation worse, not better.”

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.


The Wisconsin Bankers Association is the state’s largest financial industry trade association, representing 300 commercial banks and savings institutions, their nearly 2,300 branch offices and 28,000 employees.

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