U.S. banks should begin to see less and less benefit to earnings from rising short-term interest rates over the coming quarters, says Fitch Ratings.
While net interest margins (NIMs) have been expanding in the wake of rising rates, accelerating funding costs could lead to a stall, or even reversal, in this recent margin expansion, Fitch says in a new release published Monday.
Additionally, as longer-term interest rates continue to rise, the rating agency expects to see revenue generated from mortgage banking to decline.
Fitch notes that the Mortgage Bankers Association is forecasting mortgage originations to fall by 6% for 2018 (led by a 24% drop in refinancings). “Lower originations should result in continued fee income pressure and lower production margins as the industry right sizes its overcapacity,” it says.
“Taken together, these two factors have the potential to reverse the NIM and revenue expansion that most banks have been experiencing going into 2019,” says Fitch.
The rating agency is not expecting major ratings implications for the banks from NIM expansion stalling or reversing.
“Continued benign asset quality as well as better operating efficiency driven by digitization efforts could contribute to stable earnings performance over coming quarters,” says Fitch.