Just use this chart to forecast the price of banking stocks
17 Jan, 2022
Category: Banks
Tags: Portfolio
A useful tool to forecast the profitability of banking stocks
Banks' profit relies on the net interest margin earned, which is the difference between the interest rate paid to depositors and the interest rate earned from borrowers.
Depositors usually place their deposits short term (3 months/1 year) while borrowers usually borrow long term money (30 years) to fund their large-item purchases, such as a house.
Hence, when the interest rate difference for the short term rate and long term rate expands, it means banks can earn more profit.
If you check out the net interest margin between 3 months and 30 years period, you will see the spread is huge, something not seen for years. That's why the share price of banks are so bullish recently.
You can use this tool to check the net interest spread of Malaysia over the last 15 years and you will be surprised with the share price potential of Malaysia bank stocks.
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