US Banks Look for Interest Earning to Rebound in ’22

A new economic forecast says U.S. banks will see more growth from the “bread and butter” business of taking deposits and lending money, Reuters writes.

The U.S. economy is likely to keep expanding, and the Federal Reserve has said it’s ready to raise interest rates for the first time in three years – which could usher in the end of the low-interest-rate environment banks have experienced.

Net interest income was down during the pandemic as interest rates were cut and there was less borrowing.

The Fed’s moves might change this as of 2022, with signals it’s ready to raise interest rates by March; federal funds futures are pricing in three more hikes later in the year.

Net interest income made up 60% of the revenue in the fourth quarter for the median bank of the biggest 12 in the country, according to Barclays analyst Jason Goldberg. This represented the lowest proportion in six years – down from 66% three years ago.

According to analysts from J.P. Morgan, the net interest income from its businesses beyond securities markets could boost to $50 billion in 2022, up from $44.5 billion in 2021.

This will mean some banks will benefit more than others, depending on their ability to retain low-cost deposits and use them to lend and invest in higher-yielding securities, with banks with portfolios weighted toward floating-rate loans coming out on top.

Bank of America executives were more vague on their outlook, saying they expected the year will bring “robust growth.” And Citigroup execs said they weren’t intending to give estimates on net interest income until Investor Day, March 2.

Fed chair Jerome Powell has hinted this week that interest rate hikes are coming, PYMNTS writes.

This comes as crypto was headed in the same direction as the stock market, with bitcoin going down almost 5%. That comes because, as interest rates climb, investors tend to take money out of speculative investments like crypto in lieu of things like bonds.

Read more: Bitcoin’s Highly Touted Decoupling vs. Fed’s Rate Hike Reality