With financial conditions easing, both Fitch Ratings and Moody’s Ratings have upgraded their outlooks for the banking sector.
On Wednesday, Moody’s revised its global outlook for banks to stable from negative, citing the supportive trajectory of monetary policy and economic growth.
“We have changed the global outlook for banks to stable from negative, reflecting our expectation that stabilization of economic growth and monetary easing will support operating environments for banks, alleviate pressure on their asset quality and help their deposit growth recover,” said David Yin, vice president and senior credit officer at Moody’s, in a research note.
On Tuesday, Fitch also revised its outlook for the U.S. bank sector to neutral in 2025 from “deteriorating” in 2024.
The revision “reflects signs of stabilization in capital, funding and liquidity metrics and Fitch’s expectations for core asset quality and profitability ratios to follow in 2025, despite weaker economic growth and a softer labor market,” the rating agency said.
The U.S. banking industry should benefit from improved business confidence, which could support loan growth, investment banking and capital markets activity, Fitch suggested.
“A shift to a more neutral monetary policy stance will ease funding costs, improve debt repayment capacity, and gradually reverse unrealized losses on securities portfolios in 2025,” the rating agency added.
Fitch also said that the regulatory environment, which could include delays or adjustments to the final Basel III capital rules, “will relieve some funding cost pressures and provide more financial flexibility.”
Despite the improving conditions, downside risks are rising too.
“Geopolitical conflicts, trade tensions and post-election policy changes in the U.S. create significant uncertainty and risks,” Moody’s noted, adding, “An escalation of geopolitical conflicts, a resumption of higher inflation and consequent monetary policy tightening are factors that could lead to a negative outlook.”