Australia has entered a record low interest rate environment and there is a high probability that interest rates will remain low for a prolonged period. The low interest rate environment is leading to a net interest margin compression for banks which could result in a profit reduction of up to 15%.
In this point of view, we explore the key factors impacting banks’ NIMs under the low interest rate environment, discuss what banks in Australia can learn from its global peers who have experienced similar conditions. and how banks should manage in this constraint environment.
We have recommended five core levers for banks to implement – the time to act is now to mitigate the potential material negative impact on profitability. Learnings from offshore suggest that a centrally coordinated approach with decisiveness will prevail.
