CU Leaders & Community Bankers Share Similar 2023 Concerns

Two separate-yet-overlapping industry groups — credit union leaders and state-charter community bankers — share some interesting concerns going into 2023 compared to the past few years when it comes to inflation, regulations, lending, deposits, interest rates, technology, and more.

Credit Union Leaders’ Top Concerns
Cornerstone Advisors recently published What’s Going On In Banking: 2023, a report spotlighting credit union leaders’ top concerns going into this year compared to the prior few years:

• Interest rate environment: 32 percent (2020); 53 percent (2021); 38 percent (2022); and 59 percent (2023).
• Cost of funds: 13 percent (2020); 8 percent (2021); 9 percent (2022); and 47 percent (2023).
• Weak economy/loan demand: 34 percent (2020); 57 percent (2021); 34 percent (2022); and 44 percent (2023).
• Ability to attract qualified talent: 19 percent (2020); 19 percent (2021); 63 percent (2022); and 39 percent (2023).
• New member growth: 43 percent (2020); 40 percent (2021); 41 percent (2022); and 36 percent (2023).
• Cybersecurity: 19 percent (2020); 26 percent (2021); 43 percent (2022); and 35 percent (2023).
• Non-interest income: 10 percent (2020); 27 percent (2021); 39 percent (2022); and 34 percent (2023).
• Efficiency, non-interest expenses, costs: 34 percent (2020); 25 percent (2021); 33 percent (2022); and 29 percent (2023).
• Regulatory burden: 16 percent (2020); 20 percent (2021); 39 percent (2022); and 27 percent (2023).
• Credit quality/problem loans: 9 percent (2020); 33 percent (2021); 4 percent (2022); and 16 percent (2023).

The report also covers payments, modernization, deposits, lending, digital transformation, emerging technologies, collaboration, and more.

Community Bankers’ Top Concerns
The Conference of State Bank Supervisors’ (CSBS) fourth-quarter 2022 Community Bank Sentiment Index (released in January 2023) indicates community bankers are more pessimistic than they were in the previous quarter.

About 96 percent of community bankers responding to a special question in this quarter’s survey believe the U.S. economy is currently going through an economic recession, with 79 percent signaling a recession started at the end of 2022. Also, the index’s results show a more pessimistic view right now among community bankers when compared to the fallout in spring of 2020 when the COVID-19 pandemic struck — with respect to the economy, business environment, and communities.

Here are community bankers’ No. 1 top concern to No. 14 (top-to-bottom in order of importance):

• Inflation.
• Regulation.
• Cost/availability of labor.
• Cyberattacks.
• Federal debt/deficit.
• Competition.
• Economic growth.
• Loan growth.
• Taxes.
• Supply chain disruptions.
• Quality of loans.
• Personal/business bankruptcies.
• COVID-19 pandemic/economic lockdowns.
• Climate risk.

“Indeed, interest rates have risen rapidly since the Federal Reserve began the current tightening cycle in March 2022,” the index report states. “As examples, the Federal Funds Rate, Freddie Mac’s Federal Cost of Funds Index and the bank prime lending rate are all at their highest level since before the 2008-2009 financial crisis.”

It adds: “In summary, community bankers expect 2023 to be a difficult and challenging year. Rising interest rates and an economic environment characterized by tepid economic growth and high inflation have many bankers concerned about deposit levels and liquidity constraints that could impact profitability and capital.”