Portfolio and Deposit Structure Leave Some Consumer Banks With Limited Exposure to Lower Rates

After two years of rapid interest rate hikes, the rising rate cycle is likely over. While there is still considerable uncertainty surrounding the path that interest rates will take from here, the market is now anticipating falling interest rates in 2024, with interest rate futures projecting one to three rate cuts in 2024 and even more the following year. Like their traditional banking peers, many of the consumer finance-focused banks in our coverage did benefit from rising interest rates. However, this benefit was not uniform; there were clear winners and losers. We expect a similar phenomenon in a period of falling interest rates, with different firms holding significantly different exposure to interest rate movements.