In other words, bank profits have risen faster than their costs in the last two years and it is higher profits which account for most of the increase in net interest margins which took place in 2011 and 2012. Bank operating costs as a percent of their total assets have actually fallen slightly since 2009, from around 5 percent to 4.4 percent in 2012.
Looking ahead, I believe that it is imperative that the banking industry makes serious efforts to reduce its interest rate spreads, thereby allowing lending rates to be lowered and, eventually, more remunerative deposit rates to be offered to savers.