WASHINGTON–A new report from the Office of the Comptroller of the Currency (OCC) says national banks have been “weathering” the COVID pandemic, but the effects of weak loan demand and low net interest margins can be seen in the data.
The OCC has released its Semiannual Risk Perspective for Fall 2021, which says the nation’s biggest banks are “weathering the COVID-19 crisis with resilience and satisfactory credit quality and strong earnings.
The report notes, however, that banks’ net interest margins dipped to a record low at federally insured banks in the first quarter of 2021.
Other challenges, according to the OCC analysis, include increased operational risk as the result of an “evolving and increasingly complex operating environment and cyber risks.” Moreover, the report stated, compliance risk is being exacerbated by “regulatory changes and policy initiatives that continue to challenge risk management.”
Key Points
Other points raised in the OCC report:
- The strategic actions being taken by banks to offset lower NIM and yields continue to present risks of their own.
- Stimulus measures, low-yield investment options, and reduced lending opportunities have led to deposit inflows that resulted in additional highly liquid assets and lower margins as banks “struggled to find yield.”
- It is likely banks will continue to attempt to further improve earnings through measures that include increasing credit risk (in both loans and investments), extending loan duration, and cost cutting, the report forecasts.
- Credit risk is moderate, according to the report, as widespread government programs to offset the financial impact of the pandemic and appropriate risk management by banks has helped to moderate credit risk.