Home | Business News | Browse by Publication | M | Mississippi Business Journal

Credit woes cut across industry.

Article Excerpt
Lower interest rates approved by the Federal Reserve Bank (FRB) could negatively impact the net interest margin of most Mississippi banks, says James H. Clayton, president and CEO of Planters Bank, Indianola and chairman of the Mississippi Bankers Association.

"Funding costs for all banks have remained fairly high due to the national subprime crisis and the need for liquidity," Clayton said. "The demand for deposits has been increasing, which has caused deposit rates to be higher relative to the Treasury curve. A sharp drop in short-term rates on the asset side will naturally put pressure on the net interest margin."

Clayton said lower rates will cause increased refinancing activity, and that has begun already. It will especially impact refinancing of home mortgages.

"There could be some increased loan activity due to lower rates, but the economy has to improve to make a large impact," Clayton said. "In (the Delta), historically high commodity prices should encourage more loan activity during the next couple of years. Profitability should be good in agriculture in 2008-2009 which will encourage more loan activity."

Due to the threat of inflation, the current decline in rates may be followed shortly (by late 2008/early 2009) by the Fed tightening and increasing rates. "That always presents problems for banks," Clayton said.

BancorpSouth is expecting that lower interest rates will have somewhat of a positive effect on the inclination of customers to borrow and/or refinance.

"However, put in the context of a possibly weakening economy, the possibilities of a recession and tightened underwriting standards by lenders, loan demand could be expected to be relatively weak for the next year,...