It’s boom time for bank profits: when will savers share the good times?

Britain’s supermarkets made an early bid to be the corporate villians in the eyes of the public as our collective economic pain deepened. But the banks – reporting hugely rising profits – are showing themselves to be far better candidates.

The latest to report, HSBC, said pre-tax profits for the first half of the year more than doubled to $21.7bn (£16.9bn) following a similarly bouyant set of numbers from NatWest last week. That’s a neat trick. How do they pull it off?

HSBC’s numbers were boosted by some one-off gains, such as the rescue of the UK arm of the collapsed Silicon Valley Bank, which has been working out well. But key to its, and NatWest’s, surging earnings are the surging margins they have benefited from.

The number to watch here is the net interest margin (NIM), which is an expression of the difference between what they charge borrowers and pay to depositors. That gap has been widening. Group-wide, HSBC’s jumped to 1.7 per cent, up by 0.46 percentage points when compared to the first half of last year. This is an apparently small number which has a very big impact on the profit line.

HSBC is obviously a global business, which makes more than two-thirds of its money in the dynamic economies of Asia. However, a cursory glance at the ring-fenced UK bank – the part of the business you and I are mostly likely to transact with – tells the same story. Its profits also more than doubled as the net interest margin there jumped from 1.7 per cent to 2.41 per cent. Check back to NatWest’s similarly funky results last week and you’ll see a case of lather, rinse, repeat. That bank’s NIM jumped to 3.20 per cent compared to 2.58 per cent in the first half of 2022.

There is nothing particularly clever about how these banks have put rocket fuel into their NIMs and embarked upon a 21st century profit moonshot as a result. Central banks around the world have been increasing their base rates to combat rampant inflation. This is the signal for lending banks to increase their rates to borrowers (whose loans are sometimes directly linked to base rates). What they haven’t been doing is commensurately increasing what they pay to the savers whose deposits fund those loans. They’ve been able to pocket the difference instead.

At this point, you will likely hear their defenders, and there are a few people out there willing to do that, pointing out that banks have a tough life when base rates are low. This limits their ability to make a return because they have to pay their depositors something even if that something begins with a zero followed by a decimal point, while low base rates put a low ceiling on what they can charge borrowers. Higher rates have simply provided them with a bit more breathing room. We shouldn’t beat up successful businesses!

But here’s the thing: they didn’t exactly go hungry during the extended spell of historically low rates we recently experienced. They still made plenty of money and they were more or less able to keep their shareholders in the manner to which they had become accustomed.

Since then, they have indulged in an extended party, which isn’t a good look at a time when people are struggling. Their depositors have every right to feel resentful. After years of miserable returns, the recent cycle of Bank of England rate rises ought to have benefited them and yet it hasn’t done that.

Amid mounting controversy, the regulatory thumbscrews are finally starting to tighten. The Financial Conduct Authority has announced a 14-point plan. As part of that, banks will have to prove to the watchdog that their accounts represent “fair value” for customers and also prompt consumers in lower paying (or even non interest) ones to consider alternatives.

If it all looks to you like the watchdog trying to shame institutions that don’t have a lot of shame into doing a bit better, you wouldn’t be wrong. But further action has been promised by the end of the year if things don’t improve.

There is nothing wrong with banks making a profit. That is, after all, what they are supposed to do. But they’ve clearly been short-changing their depositors and the latest results season proves it.

Thursday, when the Bank of England is expected to raise rates again, may very well show whether the banks have heeded the watchdog’s warning shot. Their lending rates always increase, sometimes within hours of Threadneedle Street acting. If savings rates don’t swiftly follow they will deserve every bit of the ensuing blowback.