Business News

US Regional Banks Earn More on Loans, but Warn on Rising Deposit Costs

Regional banks in the United States reported higher earnings in the third quarter, driven by strong loan growth and rising interest rates. However, executives at several banks cautioned that rising deposit costs could pressure margins in the coming months.

The average net interest margin at regional banks rose to 3.45% in the third quarter, from 3.31% in the second quarter, according to data from the Federal Deposit Insurance Corp. Net interest margin is the difference between what banks earn on loans and what they pay on deposits.

The increase in net interest margin was driven by rising interest rates on loans. The average rate on commercial and industrial loans rose to 6.03% in the third quarter, from 5.87% in the second quarter, according to the FDIC.

However, deposit costs also rose in the third quarter. The average rate on savings deposits rose to 0.51% in the third quarter, from 0.48% in the second quarter.

US Regional Banks Earn More on Loans, but Warn on Rising Deposit Costs

In a conference call with analysts, the CEO of one regional bank said that the bank is expecting deposit costs to continue to rise in the coming months. “We are seeing some upward pressure on deposit costs,” the CEO said. “We expect that to continue in the fourth quarter and into next year.”

Rising deposit costs could pressure margins in the coming months

Rising deposit costs could pressure margins at regional banks in the coming months. Banks are having to pay more to attract and retain depositors as the Federal Reserve raises interest rates.

One way that banks are trying to offset rising deposit costs is by raising fees on services such as checking and savings accounts. However, raising fees could alienate customers and lead to deposit outflows.

Another way that banks are trying to offset rising deposit costs is by growing their loan portfolios. When banks lend money, they earn interest income. The higher the loan portfolio, the higher the interest income.

However, growing the loan portfolio can be risky, especially if the economy slows down and borrowers start to default on their loans.

Regional banks are taking steps to mitigate the impact of rising deposit costs

Regional banks are taking a number of steps to mitigate the impact of rising deposit costs. These steps include:

  • Raising fees on services such as checking and savings accounts.
  • Growing their loan portfolios.
  • Offering higher interest rates on certificates of deposit (CDs) and other time deposits.
  • Reducing expenses.

It remains to be seen how effective these steps will be in offsetting the impact of rising deposit costs. However, regional banks are committed to protecting their margins and profitability.

Leave a Reply

Your email address will not be published. Required fields are marked *