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Higher-for-longer rates keep bank margins, commercial real estate in spotlight

Highlights

While the pressure of net interest margin (NIM) could subside soon, higher deposit costs will prove stubborn for the vast majority of banks during the remainder of 2024 unless there are notable declines in interest rates.

Net interest margins should rise modestly in 2025 before expanding more notably in 2026, when the profitability metric is expected to rise 16 basis points year over year.

The Street, however, is climbing a wall of worry over the potential for increased credit costs, particularly over banks' exposure to commercial real estate. Banks will record higher credit costs in 2024 and 2025, but the hit will serve as a headwind to earnings rather than a threat to safety and soundness at the vast majority of institutions

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