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Banking Conditions Survey, January 2020

Print Version

The Eleventh District financial sector continues to expand, according to respondents to the most recent Banking Conditions Survey. The indexes for total loan volume and loan demand pushed further positive, indicating growth at a faster pace than in the previous period.

Loan volume growth was broad based across all lending categories. Both commercial and residential real estate continued to lead the expansion, though at a slightly slower pace than in the prior period. Consumer loan volumes also grew as the index rose from -4.2 to 9.7.

Nonperforming loans increased during the period in all categories except commercial real estate loans. Respondents noted an increase in commercial and industrial nonperforming loans. The index reached its highest level in the three-year history of the survey, rising from 2.3 to 19.2.

Loan pricing continued to decline, although the index recovered slightly from the previous period. The majority of respondents reported no change in credit standards and terms from the previous period across categories.

Survey respondents indicated general business activity continued to expand.

Core deposit volumes rose significantly over the six-week period, with an index reading of 57.6, the highest in the three-year history of the survey. Net interest margins continued to erode, though the pace of erosion slowed markedly. The index now stands at -12.1, up from -27.5 in the prior period and -40.4 two periods ago. The cost of funds index remained negative, and the noninterest income reading increased to 15.6 from -6.0.

The outlook for the Eleventh District financial sector is optimistic compared with the previous six weeks. Expectations for total loan demand six months from now point toward growth, with the index rising from zero to 24.2. Expectations for general business activity six months ahead improved, with the index flipping from negative to positive.

Next Release: March 4, 2020

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Data for this report were collected Dec. 18–24, and 33 financial institutions—26 banks and seven credit unions—responded. The Federal Reserve Bank of Dallas conducts the Banking Conditions Survey twice each quarter to obtain a timely assessment of activity at banks and credit unions headquartered in the Eleventh Federal Reserve District. CEOs or senior loan officers of financial institutions report on how conditions have changed for indicators such as various loan types, deposits and loan pricings. Respondents are also asked to report on their banking outlook and how they perceive broader economic conditions to have changed (general business activity).

Results Table

1. Total loans: Over the past six weeks, how have the following changed?
Indicator Current index Previous index Percent reporting increased Percent reporting no change Percent reporting decreased

Loan volume

24.2

21.5

51.5

21.2

27.3

Loan demand

24.2

17.6

51.5

21.2

27.3

Nonperforming loans

6.3

0.0

21.9

62.5

15.6

Loan pricing

-30.3

-45.1

6.1

57.6

36.4

Indicator Current index Previous index Percent reporting eased Percent reporting no change Percent reporting tightened

Credit standards and terms

-9.7 -8.9 0.0 90.3 9.7
2. Commercial and industrial loans: Over the past six weeks, how have the following changed?
Indicator Current index Previous index Percent reporting increased Percent reporting no change Percent reporting decreased

Loan volume

10.7 0.0 28.6 53.6 17.9

Nonperforming loans

19.2 2.3 23.1 73.1 3.8
Indicator Current index Previous index Percent reporting eased Percent reporting no change Percent reporting tightened

Credit standards and terms

-10.7 -4.3 0.0 89.3 10.7
3. Commercial real estate loans: Over the past six weeks, how have the following changed?
Indicator Current index Previous index Percent reporting increased Percent reporting no change Percent reporting decreased

Loan volume

17.2 25.5 44.8 27.6 27.6

Nonperforming loans

-7.1 -13.4 3.6 85.7 10.7
Indicator Current index Previous index Percent reporting eased Percent reporting no change Percent reporting tightened

Credit standards and terms

-10.3 -8.7 3.4 82.8 13.8
4. Residential real estate loans: Over the past six weeks, how have the following changed?
Indicator Current index Previous index Percent reporting increased Percent reporting no change Percent reporting decreased

Loan volume

17.9 31.9 35.7 46.4 17.9

Nonperforming loans

3.6 -4.3 7.1 89.3 3.6
Indicator Current index Previous index Percent reporting eased Percent reporting no change Percent reporting tightened

Credit standards and terms

0.0 -2.1 3.6 92.9 3.6
5. Consumer loans: Over the past six weeks, how have the following changed?
Indicator Current index Previous index Percent reporting increased Percent reporting no change Percent reporting decreased
Loan volume 9.7 -4.2 29.0 51.6 19.4
Nonperforming loans 6.5 0.0 12.9 80.6 6.5
Indicator Current index Previous index Percent reporting eased Percent reporting no change Percent reporting tightened

Credit standards and terms

0.0 -4.3 0.0 100.0 0.0
6. Other banking developments: Over the past six weeks, how have the following changed?
Indicator Current index Previous index Percent reporting increased Percent reporting no change Percent reporting decreased
Volume of core deposits 57.6 35.3 66.7 24.2 9.1
Cost of funds -21.2 -23.6 15.2 48.5 36.4
Net interest margin -12.1 -27.5 24.2 39.4 36.4
Noninterest income 15.6 -6.0 21.9 71.9 6.3
7. Banking outlook: What is your expectation for the following items six months from now?
Indicator Current index Previous index Percent reporting better Percent reporting no change Percent reporting worse
Total loan demand 24.2 0.0 51.5 21.2 27.3
Indicator Current index Previous index Percent reporting more Percent reporting no change Percent reporting fewer

Nonperforming loans

3.0 5.9 18.2 66.7 15.2
8. General business activity: What is your evaluation of the level of activity?
Indicator Current index Previous index Percent reporting improved Percent reporting no change Percent reporting worsened
Over the past six weeks 15.2 13.8 36.4 42.4 21.2
Six months from now 3.0 -9.8 27.3 48.5 24.2

Comments

These comments are from respondents and have been edited for publication.

  • Our recession fear diminished and business is better.
  • We are concerned with compliance.
  • We are still concerned with CECL [current expected credit loss accounting standards].
  • We feel the presidential election will cause business customers to pause mid-year expansion until the election creates greater policy clarity for the next few years. Meanwhile, Texas continues to expand, with a housing shortage, which we feel will support real estate lending throughout the year—probably faster in the first half, with greater uncertainty in the second causing some slowing of growth in second half.
  • We don’t have great areas of concern. We are experiencing normal seasonal lending patterns (real estate down, consumer unsecured up) along with reduced uncertainty from recent FOMC [Federal Open Market Committee] communications and overall economic trends. We are cautiously optimistic heading into 2020, with longer-term interest in the future of auto lending and in fintech regulations.

Questions regarding the Banking Conditions Survey can be addressed to Saniha Aziz at Saniha.Aziz@dal.frb.org.

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