Pessimism grows among Wisconsin’s bankers

Commercial and residential loan demand in Wisconsin is flat and predicted to either stay that way or decline further in the next six months, according to the latest Wisconsin Bank CEO Economic Conditions Survey. The survey is conducted twice per year by the Wisconsin Bankers Association (WBA).

Weakened loan demand, coupled with increased delinquencies, foreclosures and past due payments led to 65 percent of the 124 bank CEOs who completed the WBA survey to conclude that the Wisconsin economy is still weakening. By contrast, only 35 percent said the Wisconsin economy is improving.

Overall, 61.5 percent of Wisconsin bank CEOs rate the current health of the Wisconsin economy as "fair," 35 percent say it is "good" and 3.4 percent rate the economy as "poor."

This is the lowest rating bankers have given statewide economic conditions since WBA began its biannual survey in 2005. By comparison, in January, 52 percent of bank CEOs surveyed rated statewide economic conditions as "good."

Bankers were a little more optimistic about localized economic conditions. Fifty percent rated the current health of their local economy as "good," but just 6 percent believe that their local economy will grow in the next six months, while 38.4 percent say it will weaken and 55.5 percent said local conditions will stay the same.

"From loan demand to the employment forecast, Wisconsin bankers are pessimistic about almost every measure of the state’s economy," said Kurt Bauer, president and chief executive officer of the WBA.

Commercial loan demand: Just 6 percent of bank CEOs predict that demand for commercial loans – a key measure of economic vitality – will increase between now and the end of the year. Twenty-seven percent said demand will drop, while 67 percent said it would stay at current levels. Bankers are even more pessimistic about demand for commercial real estate loans. Just under 50 percent believe demand will decline through the end of 2008, while 4 percent believe demand will increase.

Residential loan demand: A little over 63 percent of survey respondents believe demand for residential loans will stay at current levels, while 22 percent said demand will decline. Only 14.4 percent said demand for home mortgages will increase during the final two quarters of 2008.

Interest rates: Last January, 45 percent of bank CEOs predicted that long term interest rates for mortgages would drop during the first six months of 2008. Today, less than 1 percent says those rates will decline, while 54 percent said they will rise during the next six months. The Federal Open Market Committee’s (FOMC) attempts to revive the slumping housing market through historic cuts in benchmark interest rates has come to an end, according to Wisconsin bankers. When asked if the FOMC will lower rates again before the end of 2008, 80 percent of bank CEOs answered “no.” Over 15 percent of respondents said they believe the Fed will raise rates during the next six months.

Foreclosures, bankruptcies and past dues: Fifty-two percent of bankers reported increases in customer bankruptcies during the first six months of the year, up slightly from 45 percent in January. Similarly, 48.2 percent of bankers said the number of customer home foreclosures increased, the same percentage as six months ago. More than 55 percent of bank CEOs reported increases in residential mortgage past dues (payments that are 30 days or more late). That is up from 49 percent in January.

Employment: More Wisconsin businesses will lay-off workers by the end of the year, according to the economic survey. Over 25 percent of bank CEOs said that businesses in the markets where they do business will reduce the number of employees. That is up from 11 percent in January. Sixty-nine percent of bank CEOs said most businesses will maintain current staffing levels, and 5 percent said businesses will hire employees.

Slowed economic activity will impact the banking industry’s employment picture as well.  More than 9 percent of the 124 banks participating in the survey say they have laid off employees in the last six months and 11 percent said they anticipate eliminating positions before the end of they year.

Financial crimes: The percentage of bank CEOs reporting an increase in all forms of financial crimes targeting financial institutions and their customers dropped from 53 percent in January to 26 percent in June.

The Wisconsin Bankers Association is the state’s largest financial industry trade association, representing 300 commercial banks and savings institutions, their nearly 2,300 branch offices and 28,000 employees.

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