The NAB annual results released today include insight into how the bank’s net interest margins, the difference between income from lending and the cost of funds, are being squeezed.
For the year, group margins fell 2 basis points to 1.88%. And the trend is down with the decline accelerating over the last six months with a fall 11 basis points.
The percentage is essentially the proportion kept by the banks when lending.
This chart shows the falling margins:
The bank says margins are falling mainly due to higher funding costs, including having to pay higher rates for deposits.
In the last six months, the bank says housing lending net interest income decreased by $109 million or 6.3% driven by “higher funding costs and competitive pressure on customer pricing”, partly offset by increased volumes and repricing benefits.
Another pressure point is regulations requiring banks to hold a higher proportion of liquid assets.