WASHINGTON—In an analysis that is just as applicable to credit unions, a new risk review released by the Federal Deposit Insurance Corp (FDIC) said uncertainty around interest rates will remain an  “ongoing challenge” for banks overall during 2025.

“The banking industry’s annual net interest margin (NIM) declined as growth in funding costs outpaced growth in asset yields,” the FDIC said in the report. “Lower interest rates may help ease funding cost pressure for the banks most negatively affected by higher interest rates in previous years, but interest rate uncertainty may be an ongoing challenge for banks overall.”

According to the report, even as short-term interest rates declined in 2024 banks continued to report unrealized losses in securities portfolios as longer-term rates remained elevated, which it said represent a drag on future earnings.

Other Issues Flagged

Other issues raised in the report identify credit risks as a key, particularly in commercial real estate (CRE), with the FDIC saying the risks varied by CRE loan type in 2024, with greater asset quality deterioration in certain CRE and consumer loan portfolios.

“CRE conditions varied by property type and market in 2024, with office underperforming other CRE types,” the report points out. “CRE loan growth slowed in 2024. High interest rates continued to inhibit refinancing of CRE loans as borrowing costs rose, while higher operating costs, elevated vacancy rates, and slower rent growth weakened property-level cash flows.”The report does add, however, that while CRE asset quality weakened, past-due and nonaccrual (PDNA) and net charge-off ratios