Are banks ready for downward pressure on net interest margin?
2023-03-30
Recently, several listed banks stated in their annual reports and performance conferences for 2022 that the downward pressure on net interest margin is a key issue and major challenge for their operations in 2023. The reason why banks pay so much attention to this indicator is that at present, China's commercial banks rely heavily on interest income for their revenue and profit sources. For example, the net interest income of 11 banks that have disclosed their 2022 annual reports generally accounts for more than 70% of their revenue, while the figure for individual banks exceeds 90%. As a key indicator reflecting the comprehensive operational ability and profitability of commercial banks, the impact of net interest margin narrowing on banks is self-evident. Since this year, many commercial banks have taken stabilizing interest rate differentials as one of the core objectives of asset liability management. The author believes that in the future, commercial banks can take multiple measures to mitigate the downward pressure on net interest margin and improve operational efficiency. First of all, efforts should be made to improve the return on assets. First, optimize the credit structure and give full play to the role of credit assets as ballast stones. At present, credit assets have important contributions to the revenue and deposit derivatives of China's commercial banks. Secondly, it is necessary to improve the ability to explore incremental high-quality assets and high-quality customers. In the context of declining interest rates, the scarcity of high-quality assets is the norm, and improving asset acquisition capabilities is crucial. Third, it is necessary to strengthen risk pricing capabilities, prudently select customer groups, improve risk identification capabilities and risk diversification management capabilities, in order to obtain a higher rate of return on risky assets. Fourth, strengthen the ability to invest in non credit assets, including various types of bonds and interbank assets, and especially improve the ability to study and judge the trend of interest rates. Secondly, strengthen core deposit absorption capacity. In the context of downward interest rates, financial disintermediation, and intensified interbank competition, core deposits with low costs, stable funds, and good customer stickiness are facing pressure from interbank diversions. Many banks have increased their efforts to actively leverage (interbank certificates of deposit, structured deposits, etc.), but the cost of active debt is high, making it difficult to effectively reduce the cost of debt. Therefore, commercial banks should fully tap the potential of services, products, and channels, optimize customer segmentation strategies, and enhance the precipitation of low-cost funds by improving customer service capabilities. Thirdly, increase the proportion of non interest income and reduce operating costs. By increasing non interest income, commercial banks can not only get rid of excessive dependence on interest income, but also reduce capital occupation and improve the efficiency of capital utilization. Currently, the proportion of non interest income of the six major state-owned banks is around 30%, while the proportion of non interest income of some international commercial banks can be as high as 50%. Therefore, China's commercial banks can further expand service fees and commission income in the fields of wealth management, asset management, custody, settlement, and liquidation, and increase non-interest income. In addition, in recent years, some commercial banks have also significantly reduced labor costs and improved service efficiency through technological means, providing a certain buffer for the narrowing of net interest margin. Finally, it is necessary to balance the relationship between stable interest margin and risk prevention. Although the net interest margin can better reflect the current profitability of commercial banks, it cannot effectively reflect the risks they should bear in the future. Therefore, it is necessary to achieve a balance between net interest margin and credit risk, liquidity risk, and interest rate risk. The following heavy credit can increase the current net interest margin, but credit risk may be exposed in the future; Strengthening maturity mismatches can also increase net interest margin, but excessive mismatches may trigger liquidity
Edit：Hou Wenzhe Responsible editor：WeiZe
Source：Securities Dairy
Special statement: if the pictures and texts reproduced or quoted on this site infringe your legitimate rights and interests, please contact this site, and this site will correct and delete them in time. For copyright issues and website cooperation, please contact through outlook new era email：lwxsd@liaowanghn.com
Economy
Recommended Reading Change it 
Home
