Low NIM, Delayed Fed Rate Cut Threaten Banking Profits in 2024

Sluggish NIM for banks throughout early 2024 indicates that various domestic and external factors have put pressure on banks’ profitability.

Fahmi Ahmad Burhan

25 Apr 2024 - 14.08
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Low NIM, Delayed Fed Rate Cut Threaten Banking Profits in 2024

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Bisnis, JAKARTA — Declining net interest margin (NIM) reflects a weakening banking performance observed throughout the beginning of the year.

NIM, an indicator of a bank's profit from intermediation activities, represents the difference between interest income from loan disbursement and interest expenses for third-party funds (TPF). From the banking perspective, a higher NIM indicates higher profits. Conversely, a correction in NIM indicates a weakened performance.

Recently, the government urged banks to reduce lending rates in order to facilitate borrowers, in turn leading to a decrease in NIM. According to data from the Financial Services Authority (OJK), the banking NIM in February 2024 reached a level of 4.49 percent, down compared to the previous month or January 2024 at 4.54 percent.

The banking NIM decreased by 18 basis points (bps) year-on-year (YoY) compared to the NIM in February 2023 at 4.72 percent. Trioksa Siahaan, senior vice president at the Indonesian Banking Development Institute (LPPI), said the decline in NIM was due to the increase in cost of fund.

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