Fitch: Rise in Interest Rates Will Determine Earnings Growth for U.S. Mid-Tier Regional Banks
NEW YORK--(BUSINESS WIRE)--Fitch Ratings has a stable outlook for mid-tier banks, according to a report published today, reflecting the sector's solid liquidity levels and capital, declining nonperforming assets, and low credit costs.
These strengths are balanced by Fitch's expectation of declining earnings, ongoing home equity risk, and weakening commercial underwriting standards.
Fitch believes earnings for these banks are near their cyclical trough. Absent a rise in short-term rates, Fitch does not expect significant earnings improvements among U.S. mid-tier regional banks.
Liquidity profiles for this segment are solid, reflecting strong deposit generation and limited lending opportunities outside the commercial and industrial loan asset class. Fitch expects liquidity profiles to remain relatively unchanged in the near term. In the medium- to long-term, however, Fitch anticipates liquidity profiles to weaken somewhat once loan growth picks up and Fed monetary policy becomes less conducive to an expanding money supply.
Fitch expects that all of the mid-tier banks will easily achieve the Basel III capital requirements. With most of the mid-tier banks having tangible common equity levels of over 7%, maintaining the required 7% Tier 1 common equity ratios should be comfortably achieved well ahead of 2019 for the group.
Only five of the mid-tier banks in Fitch's ratings portfolio have collateralized loan obligations (CLO) holdings, which are not permissible investments per the Volcker Rule. Banks have until 2017 to dispose of these assets (absent regulatory relief). A full list of banks with CLO exposure is provided in the report.
The full report 'U.S. Banks: Mid-Tier Regional Bank Guide' is available at 'www.fitchratings.com' or by clicking on the link.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: U.S. Banks: Mid-Tier Regional Bank Guide (Weak Core Profitability Awaiting Reprieve from Low Rates)