Three area bank CEOs say they believe another economic downturn is inevitable, as is an increase in interest rates. The heads of South State Bank, United Community Bank and Southern First recently shared their thoughts with the local chapter of the Risk Management Association during a CEO panel discussion.
“Here’s what I’m sure of: There will be another downturn,” said Robert Hill, president and CEO of South State Bank.
Hill said he believes banks have been fairly disciplined but that there could still be a shock if something like a terrorist attack or political event happens that impacts confidence levels in the United States.
“That will happen at some point in time. No one knows when or what that shock is going to be, but banks are a reflection of the units they serve, and you have got to make sure you have the balance and the diversification in your loan portfolio to survive whatever it is,” Hill said.
Lynn Harton, president and COO of United Community Bank, said it is more than likely that some geopolitical event will be the shock to confidence levels, whether in China or the European Union or something in the Middle East.
“We think there are plenty of things out there for a high probability of a recession this year or next year,” Harton said.
Slow growth has contributed to the Federal Reserve’s slowing of interest rate increases. The last increase was 0.25% in December. Local CEOs say they think an increase in interest rates is inevitable.
“I think they’re going up,” said Art Seaver, president and CEO of Southern First.
Harton expects short rate increases, “or at least one before the end of the year. The real question is whether long rates will follow.”
Hill said rates need to continue to normalize at a fairly steady pace and that the underlying economy continues to be very good, adding that “inflation is beginning to pick up to where it needs to be at that 2% range.” He also said the slow pace of rising interest rates can be attributed to changes in China and Europe, not the U.S. economy.
“I think you’ll see two interest rate increases this year and hopefully another couple next year,” Hill said. “The reality is that, even then, money will be really cheap.”
As for the banking industry itself, Seaver anticipates risk management to be one of the core competencies of being a successful company.
“I’ll get asked, ‘What keeps you up at night?’ It used to be the fear of making bad loans,” Seaver said. “The reality is credit is still a big part of risk, but now the things that keep you up at night are things in technology and the speed of moving money. I worry much more about cybersecurity.”
Reach Teresa Cutlip at 864-235-5677, ext. 103, or at SCBizTeresa on Twitter.