Highlights of 2023: APAC bank margins diverge on monetary policies

In 2023, net interest margins (NIMs) emerged as a major focus for banks in Asia-Pacific due to divergent monetary policies. In response to post-pandemic inflation concerns, banks in India, Australia and Southeast Asia swiftly raised their lending rates as central banks tightened policy. Although deposit rates increased at a slower pace, this allowed banks to expand their NIMs. But as deposit rates have now also risen and most central banks have paused their actions, further growth in NIMs is being hindered. Looking at 2024, NIMs may face pressure as the monetary policy cycle potentially shifts.

The situation is reversed in mainland China. The People's Bank of China maintained an easing bias through much of 2023 as authorities sought to support the economy hit by troubles in the real estate sector. In Japan, expectations are growing that the Bank of Japan would drop its negative interest rates policy that has been in place since 2016.

Chinese megabanks' earnings to get some respite from lower impairments, costs

The net profit of three out of the four largest Chinese banks — Industrial and Commercial Bank of China Ltd., China Construction Bank Corp. and Bank of China Ltd. — showed slower growth in the July-September quarter from the previous year, according to S&P Global Market Intelligence data. This trend can be attributed primarily to a decline in NIMs.

Chinese megabanks flag fresh NIM pressure as rates could fall further

The four major Chinese lenders — Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China Ltd. and Bank of China — saw declines in their NIMs during the first half of 2023. The banks attributed this to a decrease in lending rates due to policy easing, while deposit rates remained relatively stable.

Japanese regional banks may raise loan loss provisions as bankruptcies grow

The aggregate nonperforming loan ratio in a sample of 58 Japanese regional banks edged lower to 1.78% in the fiscal year ended March, from 1.83% in the previous year, according to S&P Global Market Intelligence data. Analysts and the banks themselves warned that the mounting pressures on the country's firms could impact lenders in the coming quarters.

Japanese megabanks to halt margin decline after monetary policy tweak

While the Bank of Japan is widely expected to hold rates steady through 2023, it tweaked its yield curve control policy July 28, allowing 10-year yields to rise as high as 1.0% from the previous tolerance of 0.5%. Despite the NIM contraction, Japanese megabanks are mostly on track to hit or exceed their profit targets for the year ending March 2024.

Big Indian bank profits to level off as net interest margins plateau

The biggest lenders in the South Asian nation reported year-over-year gains in their net incomes in the July-September quarter. Sequentially, however, earnings were flat. NIMs, a key growth driver for earnings in recent quarters, have plateaued. Indian banks were initially able to quickly pass higher interest rates to their customers. Now, the central bank has hit pause and deposit rates have had time to catch up with lending rates.

Indian banks' earnings to lose net interest margin lift as central bank pauses

The largest private- and public-sector banks in India experienced higher net profits in the April-June quarter, benefiting from their ability to quickly pass on increased rates to customers while paying less for deposits. But as deposit rates caught up and funding costs increased, the NIMs of some banks decreased from the previous quarter, raising concerns about future profitability.

Competition to squeeze Australian bank profits in 2024 as COVID-era subsidy ends

Australia's big four banks face a tougher year of declining NIMs and intense competition for deposits as an era of cheap funding comes to a close. Mortgage lending, which had long been a growth engine for the big four banks, stalled in 2023 as borrowers moved to refinance their fixed-rate loans.

Australia's big banks look beyond mortgage lending as competition intensifies

The four major lenders in Australia said they would redirect capital and investment to their business lending segment, as stiff competition in mortgage lending would offset any gains from their margins due to rising interest rates.

Singapore banks face uphill task to repeat 2023 profit growth

Banks in Singapore aim to replicate profit growth in 2024, but lenders have several challenges to overcome in the following year, with tepid loan growth and a high interest rate environment that could dampen wealth management fees.

Singapore banks net income growth to level off in Q3 2023 as margins peak

Singapore's banks have gained from higher NIMs as global central banks, particularly the US Federal Reserve, have raised rates since early 2022 to curb inflation, with the Monetary Authority of Singapore as one of the first central banks in Asia to tighten policy. Singapore bank chiefs have also flagged the impact that US interest rates may have on their NIMs.

Rising funding costs to dampen margin growth for Southeast Asia banks

Eight of the region's 11 largest banks by assets will likely see their net interest margins continue to grow in 2023, but margins may stop expanding thereafter, according to analyst consensus estimates compiled by S&P Global Market Intelligence.

Asian banks' efficiency gains may start to erode when interest rates fall

Increasing interest rates improved NIMs and boosted incomes for most Asia-Pacific banks, helping some lenders lower their cost-to-income ratios in 2023.