Moody, the credit rating agency issued the warning on the U.S. banking system. It has declared that the ratings of 10 regional banks are downgraded. The agency is further considering whether to downgrade a number of big lenders including Bank of New York Mellon, State Street, Truist Financial, US Bancorp, Cullen Bankers, and Northern Trust.
The analyst from Moody quoted that higher interest rates from the Federal Reserve’s inflation battle, appearing mild recession, and growing profitability put pressure on banks. All in all, the rating agency downgraded the credit ratings of 10 smaller banks, placed six more on review for downgrade, and declared the ratings of 11 more banks.
10 U.S. Banks Downgraded and 6 More Under Review
The list of 10 banks that were demoted includes Webster Financial Corporation, Commerce Bancshares, Pinnacle Financial Partners, M&T Bank Corporation, BOK Financial Corporation, Bancshare, Prosperity Bancshares, Amarillo National Bancorp Incorporated, Old National Bancorp, Associated Banc-Corp.
The six banks kept for review are Bank of New York Mellon, US Bancorp, State Street and Truist Financial, Northern Trust, and Cullen/Frost Bankers. Besides the ratings, Moody said that there is no need to be agitated. The steps taken by the agency are to recognize the influence and it is not to show that the banking system is broken.
Ana Arsov, the managing director of a financial institution at Moody, says that it’s a hard time for banks to make a profit because of the recession, higher interest rates, increasing funding costs, and the coming recession. She said that besides the downgrade, the U.S. banking system is still among the highest-rated in the world.
Moody expects a coming recession
Moody also says that until the central bank sees inflation coming down to its target 2%, the Federal Reserve will probably keep the interest rates high. The agency also added that the US bank’s lending losses will increase if the economy witnesses a recession.
The rating changes show that in the coming quarters, the bank profits will go down. Arsov also said that the agency is forecasting a recession which ultimately results in a weak economy. More borrowers and repayment of loans become difficult due to the weak economy and they end up being defaulted.
She also added that the credit execution has been excellent in recent years, hence, credit costs can go up in areas such as consumer loans and commercial real estate. The profit of banks comes under pressure as they are forced to pay high-interest rates to customers to retain the deposit.
Moody issued a warning to the US banking system that it is cutting the credit ratings of 10 regional banks. The agency also expects a recession and this will lead to a tightening of credit conditions and an increase in loan losses for US banks.