The financial services slowdown carried into the early fall, according to the latest American Banker Index of Banking Activity.
The overall index for September was 55.8, down slightly from the 56.9 reading from a month earlier. It was the monthly index's fourth consecutive decrease since an unexpected spike in long-term interest rates in June.
A majority of September's subcomponents showed signs of decelerated activity, led by an ongoing cooldown in consumer lending. Consumer loan applications fell; at 48.2, marking the first month of decline since January. Approvals of those applications had a 47.7 reading, also indicating a decrease.
As a tradeoff, loan pricing firmed, likely due to higher rates. The reading for consumer loan pricing jumped to 62.7 compared with 54.1 a month earlier. Meanwhile, the reading for commercial loan pricing edged up in September to 52.4 from 51.8 in August.
The September IBA included concerns leading up to the two-week federal government shutdown that occurred the following month. One respondent expressed worries that the impending shutdown would "put a damper" on mortgages and loans through the Small Business Administration.
Commercial loan activity had mixed results in September. Applications grew at a slower pace than a month earlier, with a 57.1 reading, and the pace of approvals also cooled. It may take some time before the readings show meaningful improvement, industry experts warn.
"Uncertainty is the enemy of economic growth," William Dunkelberg, chief economist of the National Federation of Independent Business, said in an interview last week at American Banker's Small Business Banking Conference in New Orleans.
Washington "has to do something to give people more confidence," added Dunkelberg, who is also chairman of Liberty Bell Bank (LBBB) in Marlton, N.J. "Small business owners aren't going to bet their money willy-nilly. They need to know that we're back on track."
Bankers expressed similar concerns.
"As long as Congress and the President continue to kick the debt-limit can down the road without taking steps to address spending, the deficit or the national debt, businesses will remain very cautious," Dick Evans, the chairman and chief executive of Cullen/Frost Bankers (CFR) in San Antonio, said during an Oct. 30 conference call. "When they do address needs, we're seeing businesses using their own money."
Credit quality also showed signs of continued deterioration in September. Consumer delinquencies registered a reading of 62.7, compared with 61 in August. Delinquencies among commercial borrowers posted a 63.8 reading, an slight increase from 63.5 a month earlier.
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.
Some bankers are warning that other institutions are compromising standards to make more loans.
"Frankly, I don't think you could get 3% or 4% [loan growth] in the market," Kelly King, the chairman and CEO of BB&T in Winston-Salem, N.C., said during an Oct. 17 conference call.
The U.S. economy "is not growing at 2%, so this notion that banks are going to grow faster than [gross domestic product] is kind of an interesting conclusion to reach," King added. ""We're not going to put more of an emphasis on cutting price and taking on more risk."
A positive development in September involved staffing, which reversed course and showed signs of improvement. The month's 63.2 reading indicated strong expansion, compared with the 47.8 mark from a month earlier.
The IBA is a product of American Banker's monthly surveys of bank executives. The diffusion index is published in partnership with VantageScore Solutions. The latest installment was based on 290 responses.
The IBA's 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 ensure that the breakdown of companies included in the executive panel is representative of the industry.
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.