Community Bankers Eye Historic Deposit Levels amid Pandemic, CSBS Survey Finds

With the nation still grappling with a global pandemic, bankers’ concerns have shifted, according the Conference of State Bank Supervisors’ eighth annual national community bank survey released today.

Last year’s focus was on local business conditions. For 2021, the lingering effect of COVID-19 on local economies has created a new concern: historic levels of deposits and narrow net interest margins, the survey found. As the pandemic continues, banks report significant liquidity; however, 52% of community banks described loan demand as a “very important” challenge with a decline in lending, particularly in the business, agricultural and commercial real estate categories.

The Paycheck Protection Program initially bloated bank balance sheets, adding about $145 billion in loans at the end of 2020, according to the survey. The volume of PPP loans declined to $111 billion by June 2021. Lending outside the PPP, particularly in the commercial and industrial sector, was “less robust,” report authors noted. Non-PPP commercial and industrial lending declined by $30 billion, or 10%, from December 2019 to this June.

The pandemic also created some long-lasting effects. More than 40% of community bankers said it led to increased efficiency, and more than 70% of respondents said prospects for long-term lending were improved by new or closer customer relationships. Read more from the ABA Banking Journal.