What is the main concern raised by UK finance minister Jeremy Hunt regarding domestic lenders?

UK finance minister Jeremy Hunt has voiced his apprehensions about domestic lenders, including major institutions like Lloyds Banking Group, NatWest, and Barclays, not taking adequate measures to alleviate the impact of rapidly increasing consumer borrowing costs. He suggests that these banks should be more proactive in addressing this issue by raising savings rates to provide relief to consumers.

The crux of bank profitability lies in the net interest margin (NIM), a fundamental metric that signifies the difference between the interest paid to depositors and the interest charged to borrowers, divided by the interest-bearing assets held by the bank. For instance, last year the average NIM for Lloyds, NatWest, and Barclays was at 2.9%.

This year, fueled by the surge in interest rates, JPMorgan predicts that the NIM will rise to 3.2% for Lloyds and 3.3% for both Barclays and NatWest. These figures represent the highest average NIM levels in over a decade, as per Refinitiv data. It is evident that NIM plays a pivotal role in understanding banks' profitability dynamics and their ability to adapt to shifts in the market environment. The concerns raised by Hunt underscore the crucial linkage between NIM, consumer rates, and overall banking sector performance.

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