ALBAWABA – United States (US) based Moody's cut credit ratings of several US banks on Monday, all of whom were small to mid-sized banks, and said it may downgrade some of the nation's biggest lenders, news agencies reported Tuesday.
Moody’s warned, in a statement that was carried by Reuters, that the sector's credit strength will likely be tested by funding risks and weaker profitability.
Moody's cut credit ratings of US banks and placed six banking giants on review.
Ten small to mid-sized US banks were downgraded by one notch and the six major banks placed under review include the Bank of New York Mellon, US Bancorp, State Street and Truist Financial.
"Many banks' second-quarter results showed growing profitability pressures that will reduce their ability to generate internal capital," Moody's said in a note that was carried by Reuters.
"This comes as a mild US recession is on the horizon for early 2024 and asset quality looks set to decline, with particular risks in some banks’ commercial real estate (CRE) portfolios," one of Moody’s notes said, according to Reuters.
Moody's said elevated CRE exposures are a key risk due to high-interest rates, declines in office demand as a result of remote work, and a reduction in the availability of CRE credit.
The agency also changed its outlook to negative for eleven major lenders, including Capital One, Citizens Financial and Fifth Third Bancorp, according to Reuters.
The collapse of Silicon Valley Bank and Signature Bank earlier this year sparked a crisis of confidence in the US banking sector.
Moody's also cautioned that banks with sizable unrealized losses that are not reflected in their regulatory capital ratios are vulnerable to a loss of confidence in the current high-rate environment, Reuters reported.
Moody’s report comes against the backdrop of tightening monetary conditions after the fastest pace of interest rate increases by the Federal Reserve in decades slows demand and borrowing.
