While the pressure of net interest margin (NIM) could subside soon, higher deposit costs will prove stubborn for the vast majority of banks during the remainder of 2024 unless there are notable declines in interest rates. Amid a higher-for-longer rate environment, funds will continue to move into more expensive deposits and institutions will see customer balances reprice higher as certificates of deposits (CDs) mature. That dynamic will limit the turnaround in NIM. The Street, however, is climbing a wall of worry over the potential for increased credit costs, particularly over banks' exposure to commercial real estate. The industry will see credit losses rise notably over the next few quarters, but the increase should serve as a headwind to earnings rather than a threat to bank balance sheets.
Key findings include:
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