Depressed oil prices are finally leading to layoffs in the energy sector and contributing to a slowdown of momentum in the banking industry, according to the latest American Banker Index of Banking Activity.

The overall index fell to 52 in January from 54.9 in December and 53.7 a year earlier. Though still indicative of expanding activity, the latest reading is the lowest tally since American Banker launched its index in June 2012.

The survey's nearly 300 participants, for the first time, held a pessimistic view of in-market business conditions. The subcomponent's 49.4 reading compared to 57.5 from December and 53.7 a year earlier.

Concerns over oil prices, which had been understated in prior surveys, took center stage in January's responses. Several participants pointed to noticeable stress on oil-service companies, evident in the form of layoffs and reduced borrowing.

Bankers have also been discussing moves that clients in the energy trade are making to absorb the hit of lower oil prices.

Oil-related companies are looking to reduce capital expenditures and defer other expenses, Barb Godin, chief credit officer at Regions Financial in Birmingham, Ala., said during a Feb. 10 conference hosted by Credit Suisse.

"If this extends for 12 to 18 months, I'm sure that we will have downgrades," Godin said. (About 80% of Regions' energy portfolio consists of shared national credits, including 37 loans tied to oil-field services.)

It is worth noting that the IBA's reading for in-market real estate conditions was 52.6, indicating that bankers' negativity last month was predominantly focused on commercial-and-industrial lending.

Winter weather also contributed to decelerated growth, as consumer lending lost momentum. The reading for consumer applications (45.5) and approvals (47.7) revealed retrenchment for the first time in a year.

Residential real estate loans at commercial banks fell slightly in January compared to the end of last year, to $2.03 trillion, based on recent data from the Federal Reserve Board. Other consumer loans decreased nominally, to $1.21 trillion. (The Fed data indicate that mortgage activity has picked back up in February, while other areas of consumer borrowing continued to decline.)

Still, other aspects of the index showed ongoing improvement.

Commercial loan applications (51.5) and approvals (52) continued to accelerate, despite decreased borrowing in the energy sector. Total loans outstanding increased, though January's 59.8 reading was the lowest tally in a year.

Commercial-and-industrial loans rose about 0.8% during January, to nearly $1.8 trillion, according to the Fed data. Commercial real estate loans increased by 0.6%, to $1.61 trillion.

"Commercial's been growing a bit faster than consumer, and we would expect that trend to continue," Bruce Van Saun, the chairman and chief executive of Citizens Financial Group in Providence, R.I., said during his presentation at the Credit Suisse conference. Van Saun predicted that commercial loans will eventually make up half of his company's loan book; such loans currently make up 44% of total loans.

KeyCorp, which has been hiring commercial bankers, is "actually seeing quicker paybacks for those investment" than what it otherwise would have expected, Don Kimble, the Cleveland company's chief financial officer, said during the Credit Suisse conference earlier this month. "It's been very successful."

Index readings above 50 indicate monthly expansion; readings below 50 point to contraction. For contrary indicators, including components that track loan delinquencies and loan-rejection rates, a reading above 50 is evidence of deteriorating business activity. The further from 50 a reading is, the stronger the indicated change.

Banks are continuing to compete on interest rates to make loans. The January readings for consumer loans (48.7) and commercial loans (47.5) continued to show concessions being made for borrowers.

Fortunately, banks are finding it less expensive to hold deposits. At 47.6, the reading for consumer and commercial deposit pricing marked the fourth straight month of improvement for financial institutions — and the best showing in the history of the index.

Banks are continuing to hire. The IBA's reading for staffing was 52.1 in January, representing the ninth straight month of improvement.

The IBA is a product of American Banker's monthly surveys of bank executives. The latest installment of the diffusion index was based on 292 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 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.

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