Last week, the U.S. banking industry reported another quarter of strong financial performance. In the fourth quarter of 2018, net income more than doubled, according to the FDIC’s quarterly banking profile. Loan balances continued to increase (up 4.4%), and net interest margins improved (to 3.48% overall). And the dollar amount of loans that were noncurrent — 90 days or more past due or in nonaccrual status — fell by $1 billion (1%).

But bank executives, including CFOs, are growing less confident about the macroeconomy and the industry’s ability to repeat 2018’s performance, according to a Promontory Interfinancial Network survey released on Monday.

While 22% of the 447 respondents (209 of them CFOs) to the Bank Executive Business Outlook Survey said they expected economic conditions to improve in the next 12 months, 37% projected a worsening of overall economic conditions, a rise of 21 percentage points over the third quarter’s results.

And when asked about the timing of the next recession, 52% of banking executives said it would happen sometime in 2020, with the next largest percentage (25%) indicating in the last six months of 2019.

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bankers' confidence slipPromontory’s proprietary Bank Confidence Index (based on expectations of access to capital, loan demand, funding costs, and deposit competition in the next 12 months) also worsened, for the fourth consecutive quarter. The index dropped 3.7 points, to 42.5. (A score of 50 represents the baseline expectation.)

What lies ahead that has bankers worried? When Promontory asked them to choose their top concerns besides a deteriorating economy, they indicated that cyber-hacks and meeting evolving innovation demands were their biggest concerns, followed closely by the entry of nontraditional players into banking.

On the financial side, the projections were mixed: a strong majority of respondents predicted increases in deposit competition and funding costs in the next 12 months. Most did not, however, expect their access to capital to change, and a plurality expected overall loan demand to actually improve in 2019.

The Promontory survey was conducted around the same time as the Federal Reserve’s senior loan officer survey (early January). That survey also indicated growing banker pessimism. In particular, it found a souring outlook for business loans, based on a worsening economic outlook and banks’ “reduced tolerance for risk and increased concerns about the effects of legislative changes, supervisory actions, or changes in accounting standards,” the Fed’s report said.

Moderate net fractions of U.S. banks expected to tighten both commercial and industrial real estate lending standards, and significant net shares of banks expected the performance of business loans already on their books to deteriorate.

While fourth-quarter results from the FDIC showed banking humming along, the FDIC’s accompanying report also indicated that the industry’s goldilocks period might be coming to an end.

The near flattening of the yield curve will present new challenges in lending and funding, said Diane Ellis, the FDIC’s director of the division of insurance and research. She also said that banks will have to prudently manage heightened exposure to interest-rate, liquidity, and credit risk in order to “sustain lending through the downside of this economic cycle when it occurs.”

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