Yahoo Finance Low Interest Rate Environment Pressured Net Interest Margins
FDIC: US Banks' Earnings Grew by 5.1% in 3Q15
Net interest margins are pressured
In this article, we will take a look at the net interest margins and operating revenues of US banks (IYG) in 3Q15 as reported by the Federal Deposit Insurance Corporation (or FDIC). During 3Q15, the average net interest margins of FDIC-insured institutions were 3.08%, slightly higher than 3.07% in 2Q15, but lower than 3.15% in 3Q14.
However, community banks are better off, as their margins did not decline as much because they extended asset maturities. Net interest margins of community banks are 50 basis points higher than the industry average of 3.08%. Average net interest margins for these institutions have inched down nearly 80 basis points since 2009 and hit a 30-year low in the first quarter of 2015.
Shrinking net interest margins pressured the profitability of US banks due to the prevailing low-interest (TLT) environment. Banks have been working to boost revenues from fee-based services to counter the impact. Banks have reported a rise in net interest margins in the last two quarters despite a low interest rate regime.
Net interest margin is an important operating metric for banks. It is measured as the spread between the interest income received by banks and the interest paid out to customers on deposits as a percentage of their interest-earning assets.
Net interest margins of major banks were lower
JPMorgan Chase (JPM) reported net interest margins of 2.06% in 3Q15, 5 basis points lower than in 3Q14. Similarly, Wells Fargo (WFC) and Bank of America (BAC) also reported margins of 2.2% and 3%, respectively, which were lower year-over-year.
Read on as we further discuss how bank’s margins are at risk due to a mismatch in asset and liability maturity.
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