2023-08-08 09:46:17
Moody’s offices in New York
Rising interest rates are forcing companies to pay more for deposits.
(Photo: Reuters)
New York Rating agency Moody’s has downgraded the creditworthiness of 10 small and medium-sized US banks, saying they may also consider large lenders such as US Bancorp, Bank of New York Mellon, State Street. and Truist Financial will downgrade. The procedure is part of a comprehensive investigation of the growing pressure on the industry, it said.
Higher financing costs, possible regulatory capital weaknesses and rising risks related to commercial real estate lending amid slowing demand for office space are among the stresses prompting the review, the rating agency said in a series of statements on Monday.
“Taken together, these three developments have deteriorated the credit profiles of a number of US banks, although not all banks equally,” read some of the reviews.
Companies whose ratings have been reduced include M&T Bank Corp, Webster Financial, BOK Financial, Old National Bancorp, Pinnacle Financial Partners and Fulton Financial. Northern Trust and Cullen/Frost Bankers are also under consideration for a downgrade.
In addition, Moody’s has changed the outlook to negative for 11 lenders, including PNC Financial Services Group, Capital One Financial, Citizens Financial Group, Fifth Third Bancorp, Regions Financial, Ally Financial, Bank OZK and Huntington Bancshares.
“Rising refinancing costs will erode profitability”
Many investors were spooked by the collapse of regional banks in California and New York earlier this year and have been alert for signs of industry stress ever since. This is because rising interest rates are forcing companies to pay more for deposits and driving up the cost of financing from alternative sources.
At the same time, these higher interest rates are eroding the value of bank assets and making it harder for commercial real estate borrowers to refinance their debt, which could weaken lender balance sheets.
“Rising funding costs and falling earnings metrics will erode profitability, the first buffer against losses,” Moody’s wrote in a separate statement on the move. “Wealth risk is increasing, especially for small and mid-sized banks with large exposures to commercial real estate.”
Some banks have reined in lending growth, which, while conserving capital, is also slowing the shift of their loan portfolios into higher-yielding assets, Moody’s said.
Banks that depend on greater concentration or proportions of uninsured deposits are more exposed to these pressures, particularly banks with high proportions of fixed income and loans.
More: How the office crisis is gripping America’s inner cities
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