Moody’s has downgraded credit ratings for several small to mid-sized U.S. banks, with warnings of potential downgrades for larger lenders, citing credit strength challenges due to funding risks and weaker profitability.
The agency highlighted pressures on banks’ profitability, predicting a mild U.S. recession in early 2024 and potential declines in asset quality, particularly in commercial real estate portfolios.
Moody’s also issued a negative outlook for eleven major lenders, emphasizing the vulnerability of banks with unrealized losses in the current high-rate environment.
“Many banks’ second-quarter results showed growing profitability pressures that will reduce their ability to generate internal capital,” Moody’s wrote.
Why Moody's US credit downgrade from "stable" to "negative" is a joke. pic.twitter.com/MwcWXZkNps
— Keith Fitz-Gerald (@fitz_keith) November 15, 2023
“This comes as a mild U.S. 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.”
The report comes amid tightening monetary conditions and concerns about weakening loan demand and tighter credit standards.
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