NEW YORK, NY -- (Marketwire) -- 03/11/13 -- The American Banker Index of Banking Activity (IBA) registered a reading of 53.8 for the month of January, declining from 56 a month earlier and hitting its lowest level since the index began tracking banker sentiment last June. (Read full article: http://www.americanbanker.com/issues/178_41/slower-loan-growth-dumps-ice-on-january-s-index-of-banking-activity-1057160-1.html.)
The reversal of fortune from December's statistical readings as well as commentary from bankers suggest accelerated activity at year-end ahead of the so-called fiscal cliff may have cannibalized growth in early 2013.
The IBA tracks the level of business activity across a range of factors that are fundamentally important to the commercial banking business. Composite readings above 50 indicate an expansion of activity and readings below 50 point to contraction. The farther from 50 a reading is, the stronger the indicated change.
The IBA is a product of American Banker's regular surveys of banking executives and is published in partnership with VantageScore Solutions. The latest installment of the index was based on 312 responses to surveys.
BANKING INDUSTRY CONDITIONS
January's reading for consumer loan applications dropped to 49 from 54.5 a month earlier while commercial lending also lost steam. The reading for commercial loan applications declined to 54.2 in January from 57.8 in December.
In addition to a slowdown in loan applications, there was a decline in loan growth. January's reading for outstanding loans plummeted to 52.8 from 61.2 a month earlier, suggesting that strong growth in December ahead of tax increases may have put a damper on January expansion. "December had a spike in activity with 2012 tax moves, particularly in the real estate space," said one banker.
Pricing on consumer loans was one area where intense pressure seemed to abate a bit. The component that tracks consumer loan pricing registered a reading of 48.9, up from 44.4 in December -- still in negative territory but closer to stability.
A number of other categories that make up the IBA, including sentiment for market conditions and loan rejections, showed little change from December.
WHAT RESPONDENTS ARE SAYING
In addition to the quantitative elements of the survey that support the IBA, open-ended questions are posed to respondents seeking information on the factors they believe are having the biggest immediate impact on their businesses.
The anticipation of sequestration -- $85 billion in automatic spending cuts that kicked in on March 1 -- helped drag down banking conditions in January, according to bankers. "We are bracing for the psychological effects of sequestration coming in March," said one lender. "I think we could grow out of this mess if politicians would just get out of the way."
"There is continuing concern about the fiscal condition of our federal government, with sequestration replacing fiscal cliff," added another banker.
Looking ahead, one lender noted that "artificially low interest rates" are creating bubbles that will eventually pop, without specifying the market segments.
HOW THE INDEX WORKS
The Index of Banking activity is a diffusion index made up of 11 equally weighted sub-indicators that summarize various business activities, such as loan activity (e.g. applications, approvals, delinquencies and loans outstanding), loan pricing, deposit account activity, staffing, and business and real estate conditions.
Respondents are asked whether each sub-indicator increased, decreased or had no change from the previous month. Responses do not include opinions, intentions or expectations, although bankers were given the opportunity to comment about market conditions.
FUTURE INDEX READINGS
Monthly readings of American Banker's Index of Banking Activity will be presented as a time series that can be used to monitor the prevailing rate and direction of change in banking business cycles and eventually to benchmark whether an institution is operating in line with overall industry needs.
About SourceMedia Research
SourceMedia Research is a unit of SourceMedia, publisher of American Banker. SourceMedia Research brings a full range of professional research capabilities to companies and executives in banking and payments. The unit manages the American Banker Executive Forum, a community of senior banking and payments executives who are committed to regularly sharing opinions and insights with the editorial and research groups at American Banker. Members include qualified professionals who read American Banker and its sister brands Bank Technology News and PaymentsSource, and attend their professional conferences. These include C-level executives and other senior professionals employed at commercial and community banks, bank holding companies and other financial companies across all asset classes.
SourceMedia, an Investcorp company, is a business to business media and marketing solutions company serving the financial industry and the related fields of professional services and technology. SourceMedia offers its clients and subscribers professional information services, industry-standard research, data applications, in-depth seminars and conferences, and specialized marketing services.
About VantageScore Solutions
Stamford, Conn.-based VantageScore Solutions, LLC (www.vantagescore.com) is an independently managed company that holds the intellectual property rights to VantageScore, a generic scoring model introduced in March 2006. Created by America's three major credit reporting companies (CRCs) -- Equifax, Experian and TransUnion -- VantageScore's highly predictive model uses an innovative, patented and patent-pending scoring methodology to provide lenders and consumers with more consistent credit scores across all three major credit reporting companies and the ability to score more people.
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