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American Banker today introduces the Index of Banking Activity, a new monthly barometer of business conditions in the U.S. banking sector. The index's initial reading of 54.4 indicates that the banking industry experienced a modest pickup in activity in June.
July 31
Business activity in the banking sector increased in July for the second straight month, according to industry executives surveyed for American Banker's latest Index of Banking Activity.
The IBA's July reading of 53.9 was down 0.5 percentage points from June's 54.4 level. This reading is indicative of modest growth at a slightly slower pace than June. The IBA is a product of American Banker's regular surveys of bank executives and is published in partnership with VantageScore Solutions. The July index was based on 219 responses.
In components tracking lending activity, respondents on average had a modestly better month in terms of application and approval rates on the consumer side of the business than on the commercial side, although by and large components on both sides of the business were consistent with a modest growth scenario. Pricing remained an area of weakness, however. July's commercial loan pricing component reading of 34.5, for example, was indicative of tough competition for new business.
Loan-application rates were a mild positive. The July reading for consumer loan applications came in at 54.3, up from 51.7 in June. The commercial-loan-application component dipped to 53.0 in July from 56.3 — still pointing to growth but, like the overall index, at a slightly slower pace.
July readings in consumer and commercial loan approvals for the month tracked very closely to the application readings: the consumer approval reading registered 54.9, while the commercial approval reading came in at 52.2.
For the second consecutive month, in-market real estate conditions had a significant positive impact on the overall index, Improvement in this segment was reported by lenders operating nationally, as well as in local markets ranging from South Florida to Portland, Ore. The real estate conditions component of the IBA was 59.0, down 1 percentage point from June's 60.0, but still solidly positive.
Deposit account activity also provided a lift in July: the component that tracks net checking accounts registered a 62.2 reading, down from 63.3 in June, while the deposit pricing component (which is a cost-of-funds factor, and therefore is treated as a contrary indicator) had a reading of 35.7 compared with 34.7 in June.
The IBA is a diffusion index. Readings above 50 in the composite indicate a monthly expansion of activity and readings below 50 point to contraction. The further from 50 a reading is, the stronger the indicated change.
The 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. Executives are also asked about staffing levels at their institutions, as well as business and real estate conditions in markets where they do business. Every attempt is made to ensure that the breakdown of companies included in the executive panel are representative of the industry on a number-of-institution basis.
Values for each component of the index are equal to the percentage of responses indicating increased activity plus one-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).
Monthly readings 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 trends.
The next Index of Banking Activity, featuring data from the August survey, will be reported in late September.
