Inflation is here, and some analysts say a recession is coming. What is of most concern? Some of Arkansas’ top bank executives answered that question candidly when they offered outlook for the remainder of 2022.
Brad Crain is president and CEO of Arvest Benton County, the largest of the company’s 14 locally-managed markets in Arkansas, Kansas, Missouri and Oklahoma. He said he was concerned about both, but because the Federal Reserve has shown no signs of slowing down in its fight against inflation, a potential recession could be a bit more troubling.
The Fed raised interest rates by 0.75 percentage points in June, its first move of this magnitude since 1994. A similar increase and possibly more is expected when the central bank meets today (26 July ) and Wednesday.
“I think they [Fed] are going to use all the tricks from the book they have [to slow inflation], and that includes rate increases that we haven’t seen in decades,” Crain said. “I think there is a possibility of 100 basis points [at the next meeting]. It wouldn’t shock me.
He said that in terms of banks and consumers, a recession would be more detrimental to employment in terms of job losses, loan repayments and the health of businesses.
“Of course, that’s a high-level perspective, and certain economic sectors or businesses or individual families may have different experiences depending on their unique circumstances,” Crain said. “The sooner we can get inflation under control, the more opportunity we have for people to understand that we’re still in a pretty healthy environment. Especially when it comes to business.
George Makris Jr. is president and chief executive officer of Simmons First National Corp. of Pine Bluff. He said rising inflation reflects supply and demand imbalances that are unprecedented.
“Have you bought a car recently,” he says. “We need supply to catch up with demand. The supply chain issue is something we haven’t seen. We need to be able to invest in production – especially here in the United States – that can solve some of the problems we have with foreign dependency.
“At a time when we need new start-up production to stem the supply shortage, we should promote investment, not restrict it.
“Now is a great opportunity for those who believe in themselves and are willing to do what it takes to succeed. Coming out of the COVID lockdowns, there is a wave of ‘more for less’ that is creating this opportunity. “
Makris said the biggest challenge for state banks going forward is general market uncertainty.
“Both as a business owner and as individuals,” he said. “We see it daily in the headlines – soft landing versus recession. The pace of interest rates is increasing. Low unemployment but demand for additional stimulus payments. Even in turbulent times, the economy works best when there is certainty driven by market fundamentals, not knee-jerk reactions to an event that cause a domino effect and ignore the longer-term impact. .
“The result is that capital dollars are set aside because they can’t guess when or what will happen.”
To combat risky market conditions, Makris said banks that are diversified in terms of geography and business will be favorably positioned to succeed.
“We offer a wide variety of products and services and are not heavily focused on one specific area. Mortgage, for example,” Makris said. “We are also developing our digital capabilities, which provide our customers with a more efficient delivery channel.”
Dale Cole, president and CEO of the chartered First Community Bank of Batesville, said he expects his bank to remain profitable as rates rise. Loan growth is up $166 million this year, and assets are up $96 million this year.
“Inflation is something we all have to live with,” he said. “Like most banks, we try to manage assets and liabilities, and we manage that [profit] margin.”
Crain said community banks are generally having a strong year in 2021 and indicators point to continued growth, particularly from a deposit perspective. Collectively, as of March 31, FDIC data showed total deposits at Arkansas banks increased $7.9 billion, or 6.9%, year-over-year to $121.5 billion.
“When we see this, it tells us that consumers are in a stronger position than they think. [with a] a higher deposit base to work through during this inflationary period,” he said. “If we get this under control, they can continue to put these [deposits] work.”
Crain echoed Makris’ thoughts on the continued importance of digital capabilities. It has become a critical trend in retail banking since the pandemic hit in 2020, when most banks entered crisis mode to build or expand digital capabilities that enabled customers to conduct business. banks without setting foot in a physical branch. Capitalizing on customer habits will be a priority.
“I think we’ve learned that more and more customers are choosing to do business through digital channels,” Crain said. “Our online banking and app usage numbers continue to grow. I think a lot of that is due to the speed and convenience of these channels, and I don’t see it slowing down.”
Crain also noted a “slight slowdown” in mortgage activity, but he is encouraged that commercial projects are springing up and moving forward.
“We may be a bit of an anomaly (in northwest Arkansas) from a community banking perspective, but I don’t see anything on the coasts yet that would lead me to believe that other areas aren’t thriving. not so,” he said.
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