The third quarter delivered another step-up in margins across the banking sector, with net interest margins reaching their highest levels since 2019. Asset repricing remains a powerful tailwind: fixed-rate loans originated in the low-rate years continue to roll off, credit spreads have held firm, and institutions are actively reshaping asset mixes to support yield.
Deposit costs, while still elevated, showed early signs of stabilizing. The industry saw only a modest increase in aggregate funding costs, and recent rate cuts point to a clearer path for easing deposit pressure into the fourth quarter and early 2026. Down-rate betas are expected to remain high, allowing banks to pass through a meaningful share of future policy moves.
One theme worth watching is the divergence in fee income dynamics.
Deposit-related fees—overdraft, maintenance, and ATM charges—saw a noticeable pickup, reversing a multi-year decline. Competitive intensity and regulatory scrutiny have influenced this trend unevenly across the industry, but the broad direction is clear: with margins improving and funding costs gradually easing, institutions are leaning more on noninterest revenue to balance earnings.
Looking ahead, the margin trajectory will depend heavily on the pace of policy easing, labor-market sturdiness, and customer behavior across both sides of the balance sheet. The strong Q3 spread performance sets a high baseline, but the industry is positioning for modest compression as funding repricing lags asset yields.
Source: https://lnkd.in/ejmwmNjN
Arnab Pandey 