Moody’s lowers ratings for many US banks

Moody’s, a prominent financial rating agency, has recently lowered credit ratings for several United States small and medium-sized banks.

The rating agency has also indicated the potential downgrade of some of the nation’s largest banks, citing worries about the banking sector’s credit viability due to funding uncertainties and decreased profitability.

The credit ratings of ten banks underwent a one-level reduction, while six major banks, such as Bank of New York Mellon, US Bancorp, State Street, and Truist Financial, are presently being reviewed for potential downward adjustments.

Moody’s highlighted that numerous banks encountered profit pressures during the second quarter of this year, potentially constraining their capacity to generate capital. These challenges coincide with forecasts of a mild economic slowdown in the U.S. early in 2024, which might lead to a decrease in asset quality. Of particular concern are dangers tied to certain banks’ portfolios linked to commercial real estate (CRE).

Elevated exposures to CRE pose a notable risk, stemming from factors like elevated interest rates, decreased demand for office space due to remote work, and limited access to credit for commercial real estate ventures.

Furthermore, Moody’s has shifted its perspective to negative for eleven key lenders, which include Capital One, Citizens Financial, and Fifth Third Bancorp.

This evaluation arises within the context of more stringent monetary conditions following substantial interest rate hikes by the Federal Reserve. The accelerated pace of these hikes has dampened demand and borrowing. These alterations have intensified the potential for an economic downturn and prompted adaptations in sectors like real estate.

Recent data from the Federal Reserve has revealed that U.S. banks encountered stricter credit standards and weaker loan demand throughout the second quarter, indicating ongoing obstacles in the industry. Fitch, a comparable rating agency, has also lowered the United States’ credit rating due to fiscal apprehensions over the upcoming years.

Among the banks affected by Moody’s credit rating downgrades are M&T Bank, Pinnacle Financial Partners, Prosperity Bank, and BOK Financial Corp.

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