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Fed buoys earnings of banks; trend to persist in 2H

Goola Warden
Goola Warden8/4/2022 09:50 PM GMT+08  • 10 min read
Fed buoys earnings of banks; trend to persist in 2H
Double-digit rise in local banks' net interest income offsets lower wealth management income
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The net interest income (NII) of the three local banks has benefitted from the four hikes in the Federal Funds Rate (FFR) by the US Federal Reserve to the extent that the higher NII was able to offset lower non-interest income and result in net profit growth.

In March, the US Fed raised the FFR by 50 bps, and by 75bps in June and July. In total, the Fed has raised rates by 200 bps this year. Undoubtedly, this has had a positive impact on the NII of banks, which rose by double digits y-o-y for all three of them (see table 1).

Since the Fed could continue to raise rates in 2H2022, albeit at a gentler pace, local banks should continue to report earnings growth. This should be a positive for their dividends, thus keeping shareholders content. Even if the US economy slows further and the Fed pauses, the current levels of interest rates will continue to boost banks’ 2HFY2022 earnings compared with levels a year ago.

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