Have Your Margins Peaked?

Welcome to the Spring 2023 issue of the Curinos Review.

Net interest margins (NIM) are at the very root of banking. Everything flows from NIM — decisions on which products to offer, what rate to charge, what asset mix to pursue and how expenses should be managed.

That’s why virtually every article in this issue is tied to NIM. Curinos believes NIM may have peaked late last year, setting the stage for a new period of focus that will be required to drive profitability. That is especially true amid the recent events that rattled the industry.

We start out with a broad look at the implications for NIM amid growing expectations that the Fed’s rate rises will plateau this year. (That said, there’s still plenty of uncertainty about the pace of increases in coming months.) It will be critical to manage deposit costs, loan growth, expenses, the securities portfolio and fee expansion as we move into this new phase.

The prospect of NIM stagnation or compression has significant implications for financial institutions with fewer than $20 billion in assets. Although these providers experienced lower deposit betas and fewer balance outflows than their larger brethren in 2022, they will likely need to take a more granular approach to deposit management as betas rise in coming months.

The NIM pressure also means new products and services will be especially critical as financial providers seek to meet the needs of current and prospective customers. We examine the potential of green banking, which is quickly evolving from a theoretical concept to real programs that go far beyond reducing paper in the office. We also explore the potential for new ways to connect with customers in the mobile channel; providers in the U.K. and U.S. are making headway, but there’s more opportunity as mobile grows in popularity. Marketing will also play a role as digital channels and a resurgence in direct mail challenge the branch’s traditional role as the primary way to attract new customers.

Because the pace of loan growth will be critical to NIM going forward, we dive into the latest trends in home equity and unsecured lending — and the need for analytics and technology to make those products more efficient. Speaking of efficiency, this issue makes it clear that expense reduction will be a critical part of managing NIM this year.

Finally, we highlight our recent research about Canadian small businesses that examines views on banking relationships, financial attitudes and motivations and product usage and capabilities.

We thank you for your business and look forward to speaking with you soon.