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Fitch: Stable Outlook for U.S. Banks as Rates Gradually Rise
November 13, 2017 / 4:34 PM / a month ago

Fitch: Stable Outlook for U.S. Banks as Rates Gradually Rise

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: 2018 Outlook: U.S. Banks here LONDON, November 13 (Fitch) Fitch Ratings' sector outlook for U.S. banks in 2018 is stable, reflecting our expectation of marginally improving profitability in 2018 offset by modest asset quality weakening, driven by rising interest rates. We expect the operating environment for U.S. banks to remain stable in 2018, with economic growth offering support for further rises in short-term interest rates. Most of the U.S. banks we rate are benefitting from rising interest rates. They have been able to increase net interest margins and could benefit from further rate rises. However, if a flatter yield curve persists net interest margins will come under pressure, and it could hinder earnings growth. We expect asset quality to weaken modestly, with non-performing loans and loan losses gradually normalizing from current cyclical lows back to long-run historical levels. Pressures are already evident in subprime auto lending and credit cards, and pressures in commercial real estate could emerge, particularly in multifamily. Capital levels should remain solid despite some likely deterioration due to a combination of increased shareholder returns and balance-sheet growth. Liquidity is also likely to remain solid, although monetary policy tightening may exert some pressure on loan-to-deposit ratios as deposit balances reprice higher or leave the banking sector. Uncertainties around tax reform and trade agreements could mute loan growth. Tax reforms might lead to tax savings for banks but this might not translate into higher earnings given the competition between institutions. If there are changes to trade policies or agreements that significantly affect importers or exporters, banks' lending volumes and asset quality could receive a knock-on impact. Regulators have seemed to express an interest in easing regulations, particularly for less complex banks. We expect this trend will continue but we think wholesale changes are unlikely. The more stringent post-crisis regulatory framework has helped make banks more resilient to stress. Broad loosening of regulatory standards would be credit negative if it led banks to materially reduce their capital or liquidity levels or increase their risk appetite. The report "2018 Outlook: U.S. Banks" is available at www.fitchratings.com or by clicking the link above. Contact: Christopher Wolfe Managing Director Financial Institutions - Banks +1 212 908-0771 Fitch Ratings, Inc. 33 Whitehall Street New York, NY Julie Solar Senior Director Financial Institutions - Banks +1 312 368-5472 Joo-Yung Lee Managing Director Financial Institutions - Banks +1 212 908-0560 David Prowse Senior Analyst Fitch Wire +44 20 3530 1250 The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. 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