When interest rate decreases, NIM impacted negatively, if fixed rate book is higher, then impact will be lower but if floating rate book is higher then impact on NIM will be higher. When interest rate decreases, bank has to decrease its lending rate almost immediately, else lender will object or transfer the loan to other bank but it can’t decrease the deposit rate on “Fixed Deposit’, so its NIM contracts.
On the other-hand during interest rate upcycle, bank immediately increase the lending rate but doesn’t increase the deposit rate (in fixed or saving) immediately or at all, so NIM expands. Higher floating rate book will be better to increase margin.
—Kindly correct me.
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