Credit rating agency Moody's on August 7 downgraded the credit ratings of several small and medium-sized US banks and said it may downgrade some of the country's largest banks.
Moody's downgraded 10 banks by one notch, including M&T, Webster Financial, BOK Financial, Old National, Pinnacle Financial Partners, and Fulton Financial. The agency also placed six other large banks, including Bank of New York Mellon, US Bancorp, State Street, and Truist Financial, on review for downgrade.
Higher funding costs, weak regulatory capital and increased risks associated with real estate loans amid weakening office demand were among the stresses driving the review, Moody's said in a report.
“These three factors have lowered the credit profiles of some US banks, although not all banks are the same,” the organization assessed.
According to Moody's, earnings for many banks in the second quarter of 2023 "show that increasing profit pressures will reduce their ability to generate internal capital. This comes at a time when the US is facing a mild recession in early 2024 and asset quality appears to be deteriorating. Some banks' commercial real estate (CRE) portfolios will face significant risks."
The organization also said that the high level of CRE risk is caused by high interest rates, reduced office demand due to the trend of remote working and reduced credit supply.
The collapse of Silicon Valley bank on March 10 has caused a crisis of confidence in the US banking sector. Photo: SCMP
Moody's also changed its outlook to negative for 11 major banks, including Capital One, Citizens Financial and Fifth Third Bancorp.
The collapse of Silicon Valley Bank (SVB) and Signature Bank earlier this year sparked a crisis of confidence in the US banking sector, leading to a run on deposits at a range of regional banks, despite emergency measures by regulators to shore up confidence.
Moody's report came after the US Federal Reserve raised interest rates to their highest level in decades, slowing demand for borrowing.
Fed survey data released last week showed that US banks introduced tighter lending standards, resulting in weaker demand for loans from both businesses and consumers in the second quarter.
Recently, Fitch, another credit rating agency, also downgraded the US rating from AAA to AA+ due to the worsening financial situation in the next 3 years and repeated debt ceiling negotiations .
Nguyen Tuyet (According to Reuters, Bloomberg)
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