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Banks Earnings-Random Thoughts

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Why the change in the interest rate will not hurt the earnings of the banks?

 

It is obviously seen that the main earning of a bank does not rely on the interest rate. It is all about the spread between the lending costs and borrowing costs. By looking at the spread, it is made clear that financial institutions kept on increasing the gap between these costs.

 

With this increasing gap, it helped in balancing the bottom line while the demand on local housing fell. Lately, the bond market has just become so bad. It took seventy-five basis points jump in just a matter of months.

 

With the reaction on the increased yields, most financial institutions increased their rates. The increase is not the same with the bonds. This is through which they take a hit. However, the reduction is not reported at this quarter.

 

Newly-built homes are not being designed at the similar pace just like before. The supply shrinks and the demand continues to grow. Even though a lot of transactions continue to remain low- the higher prices still cover up the lost sales.

 

The chief players such as employment, GDP, inflation rate stay at their hibernated rate. Even the central bank has no reason or desire to tickle the lending rate overnight. With all these facts, there is no valid reason that the residential mortgage or the overall lending market will see changes in the near future. Even banks must never worry at all.

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