Net interest margin

With high deposit and borrowing costs persisting amid the Federal Reserve's campaign against inflation, lenders face stress on their net interest margins and the potential of troubled loans ticking up.

Higher interest rates, deposit flight and looming credit losses were roiling the banking industry a few months ago, but so far banks seem to be weathering the storm. That doesn't mean things can't get worse.

Nearly nine out of 10 bankers surveyed by the Conference of State Bank Supervisors ranked the specter of rising deposit costs and narrowing margins as their top concern.

Bank of America expects interest income to rise as stronger borrowing outweighs the impact of low rates. The upbeat forecast is in contrast with remarks from JPMorgan Chase executives.

Comerica, Citizens Financial and other companies are buying up securities, paying off high-cost borrowing and trying to develop specialty lending niches. But loan growth remains weak, and the likelihood of extreme volatility in deposits makes it hard to plan ahead.

Deposits are soaring while loan demand lags and mortgage-backed securities offer weak returns. So the Alabama company has parked loads of cash at the Fed in hopes the economy will pick up steam before profit margins suffer.

The Federal Deposit Insurance Corp.’s latest report on the industry’s health had positive news about the earnings recovery last quarter, but it also showed that low interest rates amid continuing economic uncertainty are putting downward pressure on asset yields.

Current economic conditions are greatly tied to controlling the spread of the coronavirus. To survive this volatile situation, financial institutions must be resilient.

Lending opportunities have become scarce, especially with commercial borrowers, and banks are resisting the temptation to relax standards to boost volume.

While national banks have remained strong during the pandemic, they are still navigating risks from a murky credit environment and other potential warnings signs, according to a report by the Office of the Comptroller of the Currency.