Halfway through 2013, the banking industry continues to gain steam as accelerated lending outpaces continued pricing pressure, according to the most recent American Banker Index of Banking Activity.
The overall index reading for May was 59.2, compared with 57.5 in April and 56 at the end of last year.
Consumer loan approvals increased as a faster rate. At 61.9, May's reading improved from 59.1 a month earlier. Commercial loan approvals accelerated slightly; May's reading of 62.7 edged up from 62 in April.
Applications for consumer loans gained momentum in May despite reported declines in refinancing. Commercial loan applications cooled slightly.
The latest IBA readings were echoed in executives' comments in recent weeks.
"Consumer lending originations remained strong," Glenn MacInnes, chief financial officer at Webster Financial (WBS) in Waterbury, Conn., said during a June conference hosted by Deutsche Bank. "There's a little bit more competition. . . . Some of the larger players are coming into the market more often than, say, they were over the last couple of quarters."
Loan demand is "spotty," especially in the energy sector, Dan Ellinor, an executive at BOK Financial (BOKF) in Tulsa, Okla., said at a recent Morgan Stanley conference.
"The real struggle is on the commercial side," says David Powell, president of the consulting firm Vitex. "Everyone is fighting for the A-paper clients."
Pricing continues to stymie revenue. May's 47.6 reading for consumer loan pricing indicated ongoing weakness. On the commercial side, the 43.9 reading improved from 35.8 in April.
Webster is facing downward pressure on yields for mortgage originations, partially due to competition, MacInnes said.
"Pricing pressure is certainly there on the upper end: the business banking and lower middle market," Ellinor said. "Frankly, on the structure side, we've seen this film over and over again — you've got a lot of banks trying to grow assets. We'll pick our spots and do it in the right kind of way."
The IBA is a product of American Banker's monthly surveys of bank executives. The index is published in partnership with VantageScore Solutions. The latest installment was based on 261 responses.
Hiring accelerated; May's 51.7 reading was a reversal from 48.5 in April.
The IBA is a diffusion index. Readings above 50 indicate a monthly expansion of activity. Readings below 50 point to contraction. (For contrary indicators, such as the components that track loan delinquencies and loan-rejection rates, readings above 50 are considered evidence of deterioration in business activity.)
The further from 50 a reading is, the stronger the indicated change.
The composite index is a simple average of readings on a range of indicators based on responses to survey questions on topics that include volume and pricing trends, loan balances and deposit account activity.
Respondents are asked to weigh in on staffing at their institutions, as well as business and real estate conditions. Every effort is made to make sure that the breakdown of companies included in the panel is representative of the industry on a number-of-institutions basis.
Values for individual components are equal to the percentage of responses indicating increased activity plus one-half of those indicating "no change." Scores are then averaged to arrive at a composite. (In the calculation of the composite, contrary indicators such as delinquencies are scored inversely — the component figure is subtracted from 100.)