American Banker Index of Banking Activity Shows Improved Momentum

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Composite Reading of 60.1 is highest to date.

While some bankers said they are starting to see startups and business expansion among their customers, others noted that some small businesses are still struggling.

A pickup in consumer lending lifted the most recent American Banker Index of Banking Activity (IBA) to a reading of 60.1, marking a new high for the index since its inception last June. Data is based on a survey conducted in April, in which respondents were asked about the change in business conditions in March. (Read the full article at: http://www.americanbanker.com/issues/178_86/consumer-lending-provides-lift-to-latest-index-of-banking-activity-1058828-1.html)

The improvement comes on the heels of last month’s record level of 56.3.

Helping to drive the IBA to a new high for the second consecutive month was an acceleration in the indications that track consumer lending.

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 251 responses to surveys.

BANKING INDUSTRY CONDITIONS

March’s reading for consumer loan applications was 66.7, compared to 50.8 in February, while the level for approvals jumped to 65.2 from 49.6 in the previous month.

Lenders cited warmer weather and strong demand for auto loans and residential mortgages. The readings took place before the Boston Marathon bombings, the Texas fertilizer plant explosion and the full implementation of sequestration cuts.

Commercial lending activity also picked up steam. March’s reading for commercial loans applications climbed to 66.4 from 61.5 a month earlier. Approvals also were up: the reading rose to 65.4 from 60.6 in February.

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.

In February, lenders pointed to strength in residential real estate and agricultural markets, and at least one worried whether a debt-fueled bubble is building in farm land.

While some bankers said they are starting to see startups and business expansion among their customers, others noted that some small businesses are still struggling.

Said one lender: “While we have made it through the fiscal cliff and sequester, our family-owned business customers are still not willing to invest.”

A relatively high rate jobless rate is also worrisome. “Unemployment continues to impact spending, market sentiment and attitudes about the state of the economy,” one respondent noted.

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.

About SourceMedia
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

VantageScore Solutions, LLC (http://www.vantagescore.com) is the independently managed company that owns the intellectual property rights to the VantageScore credit scoring models, including the recently announced VantageScore 3.0 model which provides up to 25 percent predictive improvement over earlier models and has the ability to formulate a score for 30 to 35 million previously unscoreable consumers. Initially developed by America’s three national credit reporting companies (CRCs) — Equifax, Experian and TransUnion — VantageScore Solutions’ highly predictive models use an innovative, patented and patent-pending scoring methodology that provides lenders and consumers with more consistent credit scores across all three national credit reporting companies.

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