A.M. Best Special Report: Widening Net Interest Margins Suggest Hope for Traditional Banks

OLDWICK, N.J.--(Business Wire)--
Good news is scarce for the banking industry, as banks face deteriorating assets
and capital levels, along with uncertainties in the interbank funding market.
Prospects for an imminent economic recovery in the United States look weak.
Still, there is hope for those that can weather the next year or two. A.M. Best
sees, in current financial market and banking data, signs of opportunity for
banks. The U.S. Flow of Funds Accounts, statistics from the FDIC and other data
show how several factors may drive net interest margins higher:

* Government data show that money is moving from alternative non-banking
products-such as corporate equities, mutual funds and corporate and foreign
bonds-into more traditional banking deposits.
* From the start of 2007, the three-month treasury yield dropped from about 5%
to the most recent level of 0.3% as investors sought the safety of Treasuries
amid a developing recession.
* Banks also are benefiting from an increasing consumer savings rate, and their
net interest margins should improve in line with this trend.
* National rates on savings accounts and six-month CDs have dropped, but the
spreads on six-month CDs compared with Treasuries have widened even more,
suggesting room for banks to lower deposit rates further if necessary.
* The credit markets show signs of increased activity but remain tight, along
with observed easing in price competition for depositors.
* Banks` liability structures currently are ideally suited for the above
mentioned trends.

To download a PDF copy of all banking special reports at no cost and to access
data, analytical methodologies and news on the U.S. banking industry, please
visit www.ambest.com/banks.

Founded in 1899, A.M. Best Company is a global full-service credit rating
organization dedicated to serving the financial and health care service
industries, including insurance companies, banks, hospitals and health care
system providers. For more information, visit www.ambest.com.

A.M. Best Co.
Analysts:
Khanh Vuong, (908) 439-2200, ext. 5633
khanh.vuong@ambest.com
or
Anthony McSwieney, (908) 439-2200, ext. 5715
anthony.mcswieney@ambest.com
or
Public Relations:
Jim Peavy, (908) 439-2200, ext. 5644
james.peavy@ambest.com
or
Rachelle Morrow, (908) 439-2200, ext. 5378
rachelle.morrow@ambest.com

Copyright Business Wire 2009