Industry headwinds remain, Wis. banks, economy strong

The banking industry in Wisconsin has "truly turned a corner," said Rose Oswald Poels, president and CEO of the Wisconsin Bankers Association. Oswald Poels spoke at the association's 10th annual Wisconsin Economic Forecast Luncheon in Madison on Jan. 8..WBA surveyed state bankers and other business leaders on their expectation for Wisconsin's economy in 2015. "Despite significant headwinds, Wisconsin banks increased their lending to businesses and consumers over the past year," Oswald Poels said. "WBA's recent survey of bank CEOs on economic conditions is the most optimistic of the last several years in terms of where the state is and the potential for what the future holds.".In the third quarter of 2014, banks saw a robust 14 percent increase in commercial lending over third quarter of 2013, Oswald Poels said. More than 90 percent of bankers responding to the survey said demand for business loans is good or fair, she said. That's up from 76 percent a year ago. "About 28 percent predict an increase in demand over the next six months," she said, noting an improvement from 20 percent a year ago. Also, nearly 60 percent of WBA's survey respondents said they expect growth in the Wisconsin economy in the first half of 2015. That's up from only 30 percent a year ago..Despite optimistic expectations for loan growth and the economy, challenges are abundant for the banking industry, Oswald Poels said. "Keeping up with customers' technology needs, as well as protecting them from cyber threats like data breaches, are significant expenses. And, of course, compliance costs continue to rise," she said. "Driven by these and other factors, I expect bank consolidation will continue at a consistent pace in the upcoming year.".One adverse condition noted by Oswald Poels is the prolonged low interest rate environment. Near-zero short term interest rates will continue in 2015, said Eric Rosengren, president and CEO of the Federal Reserve Bank of Boston. "The Federal Open Market Committee has also shifted… from providing forward guidance tied to labor market outcomes to a 'patient' policy that is not time dependent," said Rosengren, the featured speaker at the WBA luncheon. "While we would all like to know when the liftoff will occur, it is not possible to predict the relevant economic conditions with enough precision to pinpoint a time at which a data-driven liftoff will be appropriate.."Some worry that patience will mean deferring the first rate increase until well past the arrival of economic conditions that historically result in tightening," Rosengren continued. "I would point out that we have some way to go before reaching those conditions, and so have not been unusually patient as yet.".Since long-term rates are below their historical average, when the Fed does increase rates "there will need to be some upward adjustment in long-term rates during the normalization process," Rosengren said..Economic forecasts remain imperfect and predictions of turning points are particularly imprecise, Rosengren said. "While market participants worry about whether liftoff will occur in April, June, or August… circumstances remind us that monetary policy can be as much art as science," he said..Regardless of industry headwinds and continued consolidation, "there will still remain many, many banks focused on serving their local communities like they do today," Oswald Poels said. "I am confident that the combined economic strength of Wisconsin's diverse banking industry will continue to serve our state's growing economy well.".WBA also surveyed leaders from the real estate and agriculture industries. Respondents said the Wisconsin housing market will continue to strengthen in 2015. "Although Wisconsin home sales were weak for the first five months of 2014, underlying economic fundamentals point to a growing housing market for 2015," said Michael Theo, president and CEO of the Wisconsin Realtors Association..Theo said foreclosure activity continues to fall, with statewide foreclosures down 23.5 percent in the third quarter of 2014 compared to that same quarter in 2013..While the ag industry remains stable, a "golden era" for agriculture appears to be winding down, said Stephen Freese, chief administrative officer of the Wisconsin Farm Bureau Federation. "Prices received for grain crops like corn and soybeans have come back down to earth," he said. "This is the main reason farm income will fall in 2015.".One of agriculture's bright spots is beef production, Freese said. "Supplies are low while demand is high," he said. "Economics 101 tells you that combination always sends prices skyward. There is incredible demand for protein, particularly beef and pork, from the burgeoning middle class economies of China, India and Brazil."