The banking sector is unlikely to gain any more margin benefit from rising rates in the current monetary policy tightening cycle, NAB chief financial officer Gary Lennon has declared.
NAB released its financial results for the half-year to March yesterday, reporting that its net interest margin hit 1.77 per cent – up from 1.63 per cent in the March half last year and 1.67 per cent in the September half.
The biggest contributors to the increase were higher earnings on deposits, which contributed 17 basis points over six months, and higher earnings on capital. These increases were offset by higher wholesale funding costs and competitive pricing of home loans.
Lennon said the bank’s NIM hit a peak of 1.79 per cent in the December quarter before falling back to 1.75 in the March quarter.
He said the drop coincided with the onset of stronger competition for deposits in February.
Industry-wide deposit inflows have slowed this year, as households cope with rising costs by eating into savings. After growing by 9.7 per cent in 2022, according to APRA data, retail bank deposit growth slowed to 0.4 per cent over the first two months of the year – an annualised rate of 2.4 per cent.
As a result, competition for deposits has picked up. Lennon said the bank’s September half would be marked by the persistence of tight lending margins and tighter deposit margins.
He said the March half looks to have been the peak in bank margin expansion. Tighter deposit margins will result from stronger competition for deposits and a shift to higher-yielding deposits, such as term deposits.