NEW YORK, NY--(Marketwire - Oct 4, 2012) - The American Banker Index of Banking Activity (IBA) registered a reading of 54.0 for August, indicating modest expansion of business activity in the industry for a third straight month. The index was slightly improved from its previous level of 53.9.
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 composite number has been above 50 in each of the three months that it has been tabulated.
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 derived from 244 responses to surveys that were conducted in September.
BANKING INDUSTRY CONDITIONS
Among the components registering the greatest improvements in the most recent reading were those tracking commercial lending activity. The latest reading on the component tracking commercial loan applications came in at 56.5, up from 53.0 in the prior month. The component that tracks commercial loan pricing levels rose to 38.8, which at a level well under 50 still suggests that most respondents are experiencing pricing pressure in this area. That indicator was up from 34.5 in the previous month.
Deposit account activity continued to show strength in August, although at levels off from July's very high readings. The index component that tracks net checking accounts (new accounts opened less those closed) logged a 60.0 reading, down from 62.2 in July. A separate component that whether bankers are paying more or less for their deposits came in at a 40.0 level, versus 35.7 in July. (Deposit pricing is one of the index's contrary indicators, because it is a cost of doing business for banks. Thus, a reading below 50, which in this component indicates that banks generally saw their deposit costs decline, is a positive reading.)
One potential weak spot that emerged in the most recent survey relates to the component that tracks consumer loan rejections at banks. This indicator measures the change in the rate at which bankers say they turned down requests for consumer loans (like deposit pricing, this component is treated as a contrary indicator). The consumer loan rejection component spiked up to 50.7, versus a prior reading of 42.7, meaning respondents on balance rejected more loans than a month before. This was the first instance of any of the index's indicators tied to the lending business flashing a negative signal, a development that merits watching in coming months.
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.
Several factors featured prominently in the most recent survey, among them the uncertainty posed by the upcoming U.S. elections. However, economic conditions were far and away the top factor cited, and the reported impact of local economic conditions was far from uniform with several respondents alluding to conditions improving in local markets, and a slightly greater number citing weak economic conditions as a drag on activity.
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 American Banker Research
American Banker Research is a unit of American Banker, the flagship information brand of the diversified B-to-B media company SourceMedia. American Banker 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 the VantageScore model, a generic credit-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.