CHICAGO -- Bankers are still worried about credit unioncompetition, but that's not their biggest threat.

In October 2006, Grant Thornton mailed questionnaires to anational sample of 4,709 CEOs and senior officers of banks andsavings institutions with assets in excess of $100 million. A totalof 355 completed questionnaires.

According to Grant Thornton's 14th Annual Survey of BankExecutives released Feb. 26, two-thirds of all banks (66%) continueto express concern about competition from credit unions, a levelthat has remained fairly consistent over the past severalyears.

Still, fewer bankers this year than last year express concernabout the number of customers they are losing to credit unions.While 57% expressed concern about the outflow of retail customersto credit unions last year, only half (50%) express concern thisyear. Only one-fourth (26%) of bankers expressed concern aboutlosing their commercial clients to credit unions, compared with 40%who voiced that concern last year. Instead, bankers seem moreinterested in competing with credit unions on a level playingfield: approximately half (48%), including 62% of mutual savingsbank executives, say that the barriers against credit unionconversions to bank charters are too stringent.

Community banks are, as they have been since 2002, the mostfrequently cited source of competition, with 77% of all bankersnaming them as a competitor that causes them concern. This year,however, nearly seven in 10 bankers (68%) say they are concernedabout competition from regional or mega-banks. Four in five (80%)large banks cite these mega-banks as a concern, compared with only62% of the smaller banks.

One in three bankers (34%) say Internet banks are competitors ofconcern, a significant increase from the 8% who cited them as aconcern in 2003. Four in 10 (39%) bankers are concerned aboutcompetition from brokerage firms, and one-quarter (25%) saycompetition from insurance companies worries them. Seven in 10(70%) of all bankers, including three-fourths (76%) of small banksand 81% of rural banks, say the entry of Wal-Mart into thefinancial services business would be a threat to their banks'business.

A decline in personal and commercial loan demand coupled with aslowed housing market and high energy prices has left some bankersfeeling cautious about the nation's economy going forward thisyear.

According to the Grant Thornton survey, more than four out of 10bankers (43%) feel uncertain about prospects for the nationaleconomy in 2007 and more than a third (38%) are on the fence aboutthe country moving in the right direction. As for the 2007 outlookfor banking, two in five (40%) are optimistic, while an equalnumber (38%) express indecision and one in five (21%) expresspessimism.

Meanwhile, bankers this year report that commercial clients makeup more than one-third (37%) of their aggregate client bases onaverage; this base is even higher (42%) on average among thebankers who express optimism about the state of the economy and thebanking industry. More than nine in 10 bankers (94%) believe thatattracting new business customers is essential to their continuedsuccess, and recent industry figures seem to bear this out. TheFDIC reported in November 2006 that commercial loan growth hadexceeded consumer loan growth for four consecutive quarters. Morethan four bankers in 10 (44%) saw increased demand for commercialloans in 2006. However, this is down from the 52% who saw increaseddemand in 2005. That said, one-fourth of bankers (26%) report adecrease in commercial loan demand in 2006, compared with only 14%who said they saw a decrease in 2005. [email protected]