The outlook for global banks has been slashed by credit ratings agency Moody’s.
Weakening economic growth, low interest rates and more volatile operating conditions will increase the credit challenges for lenders across the world, Moody’s Investors Service said in a report published today.
The agency cut its outlook from stable to negative.
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“Risks are on the downside for banks,” said Simon Ainsworth, AMD-Banking & Insurance at Moody’s.
He added: “Rising recession risk in the US and Europe, together with slowing growth in APAC and emerging markets, will lead to deteriorating loan quality and higher loan-loss provisioning costs.”
A return to monetary easing and the use of negative interest rates in some regions has ramped up the pressures on profitability.
Banks with higher cost structures will be hardest hit, reopening questions about the long-term viability of certain business models, the report said.
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“Incumbent banks are having to invest heavily in digital innovation to defend their businesses from a wave of new digital entrants,” said Antonello Aquino AMD-Banking & Insurance at Moody’s.
“To date, small technology-driven finance firms have not been a real threat to the core businesses of large incumbent banks. However, disruption to payment services is advanced and we expect further encroachment by Big Tech into financial services.”
The downgrade comes just days after Moody’s cut the UK’s banking outlook, citing both the low interest rate environment and a competitive mortgage market.