Interest rate uncertainty may be an “ongoing challenge” for banks overall in 2025, according to a risk review issued Tuesday by the federal bank deposit insurance agency.
In “key risks to banks,” the review issued by the Federal Deposit Insurance Corp. (FDIC) asserts that market risks continued to challenge the banking industry in 2024, with higher interest rates and an inverted yield curve during much of the year.
“The banking industry’s annual net interest margin (NIM) declined as growth in funding costs outpaced growth in asset yields,” the report notes. “Lower interest rates may help ease funding cost pressure for the banks most negatively affected by higher interest rates in previous years, but interest rate uncertainty may be an ongoing challenge for banks overall.”
The report states that even as short-term interest rates declined in 2024, banks continued to report unrealized losses in securities portfolios as longer-term rates remained elevated, representing a drag on future earnings.
The report also points to credit risks as key, particularly in commercial real estate (CRE). The report notes that the risks varied by CRE loan type in 2024, with greater asset quality deterioration in certain CRE and consumer loan portfolios.
“CRE conditions varied by property type and market in 2024, with office underperforming other CRE types,” the report states. “CRE loan growth slowed in 2024. High interest rates continued to inhibit refinancing of CRE loans as borrowing costs rose, while higher operating costs, elevated vacancy rates, and slower rent growth weakened property-level cash flows.”
However, the report adds that while CRE asset quality weakened, past-due and nonaccrual (PDNA) and net charge-off ratios remained far below levels reached during the Great Recession.
FDIC’s Office of the Ombudsman Publishes 2024 Annual Report of Activities
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