Survey says: Expect delinquencies, commercial loan losses and foreclosures to rise MortgagePress.comcredit issues, appraisals, healthcare costs Almost half of banking executives (49 percent) are concerned that recent credit issues will have an adverse impact on their bank, according to Grant Thornton LLP's 15th Bank Executive Survey. Reflecting this concern, less than half (46 percent) of bankers participating in the survey have confidence in the appraisals supporting loans underwritten by their bank, and just 22 percent expressed confidence in the appraisals supporting loans the bank purchases. "The lack of confidence expressed for the business of banking goes hand in hand with an overall pessimistic view of the economy expressed by more than half (56 percent) of survey respondents," said John Ziegelbauer, managing partner of Grant Thornton LLP's financial institutions practice. "At the same time, only one out of 10 bankers is optimistic about the economy. This is the highest level of pessimism and lowest level of optimism for the economy in the last five years." Credit concerns Despite the concern among bankers that the credit issues could have an adverse impact on their bank, the majority of responding executives (62 percent) believe they have no exposure to the recent credit crisis in the form of sub-prime loans, Alt-A loans or investments backed by those loan products. Thirty-five percent believe they have an exposure of less than five percent. In response to credit issues, nearly half (45 percent) of responding banks have already tightened their underwriting standards in 2007, and another third (33 percent) said they plan to do so in 2008. Bankers identified specific credit indicators to watch over the coming year, including an increase in the number of delinquencies, which 53 percent anticipate in 2008. At the same time, 41 percent of bank executives believe foreclosures and commercial loan losses will rise in 2008, while 27 percent expect an increase in consumer loan losses and 28 percent anticipate residential mortgage loan losses—an increase of 11 percent from 2007. Hiring and healthcare costs "Banking executives are illustrating a more conservative management tone," said Ziegelbauer "The number of executives reporting staff increases has declined from 2007, with 36 percent of the survey population reporting planned increases, a decline from 63 percent reported last year. At the same time, half (50 percent) of respondents anticipate stagnant growth, an increase from 28 percent last year." Over half of respondents (56 percent) anticipate their health benefit expenditures to increase, a number that is down by 23 percent from 2007. Technology expenditures are key Of those surveyed, 89 percent strongly agree that enhancing technology to improve productivity is important to their bank's success. Accordingly, 66 percent of bank executives—a higher percentage than any other category—expect technology expenditures to increase in 2008. Fierce competition Year after year, the survey results show nearly all executives reporting their most formidable competitors are each other. Overall, 76 percent of bankers polled ranked competition from community banks as their highest concern. Garnering the second highest percentage of responses were credit unions, with nearly two-thirds (65 percent) of those surveyed expressing concern about the number of retail customers their bank is losing to credit unions, while 41 percent are worried about losing commercial customers. For more information, visit www.grantthornton.com.