((Automatic translation by Reuters, please see disclaimer https://bit.ly/rtrsauto)) by Manya Saini
Several regional and mid-sized US banks reported lower earnings in the second quarter as interest income from customers was reduced due to rising deposit costs and weak demand for deposits.
Most US banks expect net interest income (NII) to fall this year as high interest rates have dampened lending activity while efforts to retain customers have driven up deposit costs.
“High interest rates, an uncertain economic outlook and challenges with alternative financing continue to reduce demand for traditional bank loans,” said Chris Stanley, head of Moody’s banking industry practice.
“Banks of all sizes need to critically examine their growth assumptions in this context,” Stanley added.
Net interest margin, a key measure of bank profitability that takes into account income from interest on loans and payments on deposits, also fell across the sector for the third straight quarter.
Huntington Bancshares HBAN.O , Fifth Third Bancorp FITB.O , Regions Financial RF.N and Comerica CMA.N joined their rivals in reporting lower second-quarter profits on Friday.
Shares of Fifth Third fell 1.5% before the bell, while Regions and Comerica fell 3% and 11%, respectively.
Several bank executives said they were actively working to cut expenses to counter headwinds in interest income.
Lenders’ loan portfolios have also come under intense scrutiny by investors since turmoil at New York Community Bancorp NYCB.N earlier this year and more recently at First Foundation FFWM.N highlighted tensions in the commercial real estate sector, particularly in office and multifamily portfolios.
Pressure from the commercial real estate sector and weakening consumer health on the back of rising interest rates have also led banks to increase their provisions for credit losses, the capital buffer that lenders set aside to deal with potential loan defaults.
The US central bank’s stress test also showed that the banks’ credit card lending and business credit portfolios could be difficult.
Results from NYCB and First Foundation late next week will round out what has so far been a weak second quarter for smaller lenders.
