US banks' NIM to remain under pressure despite expected Fed rate cut: S&P

In a recent analysis, research and data analytics firm S&P Global Market Intelligence reported that US banks are likely to face continued pressure on their net interest margins (NIM) despite anticipated rate cuts by the Federal Reserve. The compression of NIM, attributed to elevated funding costs, is expected to persist until the conclusion of 2024.

The Federal Reserve's series of interest rate hikes have prompted customers to seek higher-yielding alternatives, such as money market funds, rather than traditional bank deposits. In response to this trend, banks have raised interest rates on deposits to retain customers, contributing to increased costs for an industry already contending with a slowdown in loan demand due to rising borrowing expenses.

Analysts from S&P Global Market Intelligence anticipate NIM compression for 16 out of the 20 largest US banks in 2024, with a median decline of 14 basis points for the group. Net interest margin is a crucial metric for measuring banking profitability, revealing the amount a bank earns in interest on loans compared to what it pays to depositors.

Despite potential Federal Reserve rate cuts, the report suggests that the challenges posed by elevated funding costs and increased competition for deposits are likely to persist, keeping pressure on US banks' net interest margins in the foreseeable future.

(With Reuters inputs.)