Forecasting Net Interest Margin - Retail Banking
How do sell-side analysts forecast net interest margin? I've looked at just using the sensitivity tables in the 10k for a bank (for the first two years) and then just adding slightly directional changes, but I can't help but feel its not too accurate. Wouldn't an accurate projection of NIM require us to have a much more in-depth look at a banks books to truly understand what benchmarks are used, relative vs. fixed rate loans, interest rate floors, what rates they re-price etc? I am trying to look through reports to find a bottoms up method forecasting NIM but it seems to be a general guess based on how they think different components of the earning assets will perform in the current environment. Perhaps, that is the best way to do it.
Any advice here would be appreciated. Thank you!
CRE and C&I are generally floating rate and reprice every 1-3 months. Consumer loans are generally fixed and mortgages are mixed (but mostly fixed short-term). I would look at how much hedges they have notional (not held for trading) and subtract that from the rate sensitive loans. Also look at their liability side, whats the breakdown of non-interest bearing deposits vs regular deposits vs time/brokered deposits. Time/brokered deposits will mitigate some NIM impact on the asset side.
Theres a ton of other one-offs like charge-offs or recovery impacting interest income or fee from PPP loans counting as interest income.
Management usually guide NIM in earning calls with reasonable accuracy. I'd start there.
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