Net interest income represents 60% of banks’ revenues – Moody’s

Rising interest rates and steepening yield curves will likely boost banks’ profitability

  
A Moody's sign on the 7 World Trade Center tower is photographed in New York. Image used for illustrative purpose

A Moody's sign on the 7 World Trade Center tower is photographed in New York. Image used for illustrative purpose

REUTERS/Mike Segar

Mubasher: Net interest income is estimated to account for over 60% of banks' net revenues globally, Moody's Investors Service said on Thursday.

Rising interest rates and steepening yield curves will likely boost banks’ profitability, as the gap between long and short term rates can reflect on banks’ net interest margins, and therefore on net interest income, which is seen as a key component of their profitability.

Long-term interest rates can be pushed higher in several countries while bolstering banks' net interest margins by stronger economic activity and shifting inflationary expectations.

North America, the UK, and Norway are among the countries where long-term interest rates are already picking up significantly, Vice President - Senior Analyst at Moody's, Alexios Philippides, said.

Most European economies meanwhile will take longer to return to full capacity, given the combination of the more moderate fiscal support in the region, a slower vaccine roll-out, and structurally weaker economic growth.

Moody's has also expected the Bank of Japan to “maintain its loose policy stance, keeping rates low, continuing to depress margins for the nations' banks,” according to the report.

Net interest margins narrowed to an average of 1.75% in 2020 in banks worldwide, compared to 1.85% in 2019, yet down from 1.89% in 2016.

Source: Mubasher

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