In February and March, The Banker asked chief executive officers at leading banks for their views on the financial crisis, its causes and what governments should do in response. CEOs were also asked how optimistic they are about 2009 compared to 2008, which business areas they expect to be most active and how their banks are responding to the crisis.
Just over half of the 87 bankers who responded to the survey thought the best response from governments in the current economic environment was to increase public spending (56.5%), to lower taxes (51.8%) and lower interest rates (57.6%). Asked 'how can governments best help the banking sector in troubled times' fewer than one in three, however, opted for quantitative easing.
Although senior bankers around the world broadly agree that fiscal and monetary action by governments are helpful, hardly any wanted a return to government-led protectionism. Only 3.5% of bank CEOs thought that trade protection measures would benefit the banking sector.
The survey also asked bank CEOs how they thought 2009 would compare to 2008. The most common response (31%) was that it would be 'a little bit worse', although only 11.5% of CEOs thought it would be 'a lot worse'.
More than one in four CEOs expected an improvement or recovery for their bank in the second quarter of 2009, although more than one in five respondents expect that a significant improvement will not come until the second half of 2010. Some do not expect their own institutions to recover until 2011 or beyond.
The survey clearly indicates how important savings and deposits have become as banks seek stable ways to fund bank lending at a time when wholesale funding is difficult. Almost 40% of CEOs reported that retail savings and deposits are the 'most active' business area for their bank, with 18.4% of respondents reporting that savings and deposits are the second most active business area.
The survey also clearly indicates that banks are still active in corporate lending. More than 50% of bankers said that corporate lending is either the most active (25.3%) or the second most active (25.3%) business area for their bank.
However, it may be another poor year for mortgage lending. Fewer than 5% of bankers reported mortgage lending to be the most active business area. By contrast, nearly 15% of banks reported that they are most active in consumer finance and personal loans.
Asset management and corporate finance businesses are also suffering, with several banks reporting that advisory and corporate finance are their least active area of business.
Perhaps the most surprising result – given global financial losses that are estimated at up to $10,000bn dollars – is that just 3.5% of CEOs surveyed believe their current level of capital is too low in the current financial environment. Some 48.2% of the respondents described capital levels as 'a bit higher than the regulator requires'.
Nearly 15% of those surveyed expect significant balance sheet restructuring this year as a result of the crisis, while 50.6% of banks expect their balance sheet structures to be roughly the same at the end of 2009 as at the end of 2008.
Elements of optimism
Despite financial sector problems, bankers are optimistic about internal investment in their own businesses. Although only 29.1% of banks expect to invest in new staff, 71.3% of CEOs will invest in information technology systems this year.
Bankers also gave a clear indication of the increased interest in retail banking, with 63.2% of bank CEOs planning to invest in retail networks in 2009. This corresponds with a similarly high percentage (58.6%) of banks expecting to launch new retail deposit and saving products.
Investment in environmentally friendly technology and corporate social responsibility (CSR) projects is likely to be towards the bottom of banks' list of priorities, with only about 25% of CEOs expecting to invest in either. Very few CEOs (14.9%) expect to launch a new mortgage product in 2009.
Senior bankers are re-appraising risk management systems in the wake of the credit crisis, but only 16.3% of CEOs anticipate significant change in their approach. About 30% expect there to be little or no change to risk management systems, and a further 31% expect moderate change.
Bank CEOs blame exotic financial instruments more than any other single cause for the financial crisis. Exotic instruments ranked ahead of poor regulation, poor management, excessive leverage, mark-to-market accounting and global economic imbalances.
Cause of crisis
Excessive leverage was also an important cause of the crisis according to the survey, with 22.6% of CEOs citing it as the most significant contributing factor and 34.5% as the second most important factor.
Bankers lay little or no blame on the rating agencies for the crisis. Of those surveyed, 0% of bank CEOs thought that rating agencies were most to blame, with the majority of bankers putting rating agency failures towards the bottom end of the list of possible causes.
Few bankers (7.1%) believe governments should let banks fail when they run into trouble. The most popular response from CEOs (35.3%) is that governments should recapitalise problem banks, remove problem assets (24.7%) or nationalise (21.2%). Only 11.8% thought that governments should get involved by guaranteeing loans.
Although outnumbered by pessimists, 21.2% of bankers surveyed say they are 'cautiously optimistic' about global economic prospects in the next three months, and only slightly more (22.4%) are 'deeply pessimistic'. The most popular response to this question was that bank CEOs are 'slightly pessimistic' about the current economic environment.
The Banker CEO survey was under taken between February and March 2009 and includes responses from Western Europe (6.5%), Eastern Europe (15.6%), North America (5.2%), South America (14.3%), the Middle East (14.3%), Africa (20.8%) and Asia (23.4%). The figures are based on the net response to each individual question. For further details email charles.piggott@ft.com.
Expected overall business in 2009 compared to 2008
Expected point of company improvement/recovery
Issues which had a significant impact in bringing about the financial crisis (%)
Companies' current most active business areas (%)
Banks’ approach to risk management in 2009 (%)
