New research on the U.S. bank and thrift sector from SNL indicates that profitability in the industry will improve but not reach pre-crisis levels. The inaugural edition of SNL’s 2015 U.S. Bank and Thrift Market report also suggests that while loan and security yields are expected to expand from near 10-year lows, banks’ cost of funds will increase by similar amounts, keeping net interest margins from expanding meaningfully from their historic lows.
SNL projects that the credit environment will remain benign as the unemployment rate continues to improve over the next few years. Non-performing loans will steadily decrease, and charge-offs on those problem credits will remain relatively low, holding fairly consistent with the loss severities witnessed since 2013.
“The banking industry’s net interest margin fell to the lowest level in 10 years at the end of the second quarter 2015,” said Nathan Stovall, analyst, S&P Capital IQ and SNL. “Given the current environment, we believe much of the industry will remain under pressure through the remainder of the year. We also see a strong possibility that bank margins will rise slightly in 2016 before experiencing notable improvement in 2017.”
Other forecasts in the SNL Financial report include:
To produce this report SNL said it analyzed nearly 10,000 banking subsidiaries, covering the core banking industry from 2004 to the second quarter of 2015. The analysis includes all commercial and savings banks and savings institutions and historical institutions as long as they were still considered current at the end of a given year.
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