Non-interest income helps in leveraging income
Net interest income only reveals half the story about a bank’s revenues. A bank also earns a lot of non-interest income (or NII), the income that a bank earns largely in terms of fees and commissions for providing services. An example of non-interest income can be a fee charged by providing asset management services.
NII acts as a force multiplier for banks having a large franchisee base. A bank can cross-sell various products to its client base to increase revenues at minimal cost of new client acquisition. Similarly, the bank can harness the benefits of reach of a large branch network.
Non-interest income growth has been secular
The NII of PNC Bank (PNC) has shown secular growth in the last few years. There have been a few quarters where non-interest income fell. However, the long-term direction is up. PNC Bank earned nearly $5.5 billion in non-interest income in 2014, with the asset management and corporate services segments accounting for the most of the non-interest income.
Focus on growth in non-interest income
PNC Bank has increased its focus on growing its NII, which was largely driven by falling yields in loans and trading segments. The bank has also seen a fall in its NII due to some acquisitions made in 2009 and 2012. This led to a fall in non-interest income from the peak of 50% in 2007 to its low of 38% in 2012. The bank aims to recapture the revenue mix of 2007 in the years ahead.