Consumer Lending Provides Lift to Latest Index of Banking Activity

The banking industry's pace of expansion continues to accelerate, according to the most recent American Banker Index of Banking Activity.

The overall index reading for March was 60.1, rising from 56.3 a month earlier and marking the highest monthly reading since the IBA debuted last June. The index has increased in back-to-back months. (See the following graphic. Text continues below.)

Consumer lending paced the monthly improvement. Readings for consumer loan applications (66.7) and approvals (65.2) jumped from a month earlier, indicating accelerated activity. In February, those readings were 50.8 and 49.6, respectively.

Contributory factors included warmer weather and rising real estate valuations. "Consumer loan demand is strong for auto and residential mortgages, but sluggish in other products," one banker said.

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 251 responses.

Commercial lending also heated up. March's reading for commercial loan applications rose to 66.4, compared to 61.5 a month earlier. Approvals for such loans also grew at a faster pace; the reading rose to 65.4 from 60.6 in February. But bankers cautioned that they are frequently chasing after the same loans.

"The commercial market loan market is increasingly more competitive, relative to structure and pricing," a respondent said.

The readings took place before the Boston Marathon bombings, the Texas fertilizer explosion and full implementation of sequestration cuts. One banker cautioned that those events "will affect what businesses do."

Other positive categories included bankers' views of in-market real estate conditions, which increased to 67 from 64.8 a month earlier, and bank staffing, which bounced back after showing a decline in February.

The IBA is a diffusion index. Readings above 50 indicate a monthly expansion of activity and readings below 50 point to contraction. (For contrary indicators, such as the components that track loan delinquencies and loan-rejection rates, a reading above 50 is 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 in commercial and consumer lending, loan balances outstanding, and deposit account activity.

Respondents are also asked to weigh in on staffing levels at their institutions, as well as business and real estate conditions in markets where they do business. Every effort is made to make sure that the breakdown of companies included in the executive panel is representative of the industry on a number-of-institutions basis.

The values for individual components of the index are equal to the percentage of responses indicating increased activity plus one-half of those indicating "no change."

Component scores are then averaged to arrive at a composite (when calculating the composite, contrary indicators such as delinquencies are scored inversely — the component figure is subtracted from 100).