Analysts suggest that the current rise in U.S. interest rates could be interpreted positively for bank stocks, provided expectations for a soft landing in the sector remain steady ahead of the third-quarter earnings reports.
Ahn So Eun, an analyst from KB Securities, commented that while consensus forecasts for third-quarter bank earnings suggest a decrease in net interest income, there is an anticipated increase in non-interest income. She noted that concerns about the decline in net interest income are prevalent, with some banks attempting to temper market expectations for strong net interest income during financial conferences in early September.
Typically, the pressure on banks’ interest rate spreads increases when the benchmark interest rate is lowered, which poses a risk to net interest income. However, Ahn pointed out that concerns about bank earnings have eased since the Federal Reserve began reducing rates in September. As a result, she expects investor sentiment towards bank stocks to remain relatively positive this earnings season.
Following the September Federal Open Market Committee (FOMC) meeting, market expectations for further interest rate cuts have softened. This shift has increased long-term interest rates, potentially mitigating the downward pressure on bank stocks’ net interest income that some feared earlier in the year.
Ahn also highlighted that the Federal Reserve’s strong focus on supporting the labor market through precautionary rate cuts may provide further relief for banks. A stable employment environment boosts loan demand and helps maintain loan quality, minimizing risks such as rising delinquency rates. As a result, stable employment could act as a buffer, helping to support bank earnings despite fluctuations in interest income.
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