Kroll Bond Rating Agency Releases Research Report on Credit Outlook for 2016: U.S. Banking Industry Begins Reserve Build

NEW YORK--()--Kroll Bond Rating Agency (KBRA) has released a new research report, “Credit Outlook 2016: U.S. Banking Industry Begins Reserve Build.” The report makes the following points:

  • As banks go into the Q1 2016 earnings season, KBRA believes that the industry is entering a more normal period of building loan reserve levels for future losses, suggesting that significantly higher credit costs lie ahead. With the release of the Q4 2015 data for the US banking industry, it is clear that our earlier judgment was correct and that the period of recovery and reserve releases ended for U.S. banks in 2015.
  • KBRA notes that the era of virtuous performance of bank credit exposures almost perfectly coincides with the period of credit spread compression engineered by the Federal Open Market Committee, begging the question as to whether we now face a sustained period of rising bank credit costs. Provisions for loan losses exceeded charge-offs for the first time in six years at the end of 2015. KBRA expects to see continued increases in charge-offs and bank loan loss provisions as the year unfolds.
  • While some sectors such as commercial and industrial (C&I) loans particularly energy, real estate and autos may see increased incidence of charge-offs and non-current loans, overall KBRA expects that the loan performance at U.S. banks to remain solid. It may be inevitable for bank credit costs to rise in the wake of the end of QE, but we do not expect that these increased credit costs will translate into lower credit ratings for banks in our coverage universe regardless of size.
  • Despite the likely increase in credit costs, the outlooks remain stable for KBRA-rated banks with considerable energy exposure, given prudent credit underwriting and deep knowledge of energy markets and customers. Current ratings assume the likelihood of earnings pressure with the continued maintenance of comfortable capital ratios and sound overall financial characteristics.

To access the report, click here.

About Kroll Bond Rating Agency

KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).

Contacts

Analytical:
Kroll Bond Rating Agency
Christopher Whalen, 646-731-2366
Senior Managing Director
cwhalen@kbra.com
or
Joe Scott, 646-731-2438
Managing Director
jscott@kbra.com
or
Ben Stewart, 301-969-3186
Associate Director
bstewart@kbra.com
or
Follow us on Twitter!
@KrollBondRating

Contacts

Analytical:
Kroll Bond Rating Agency
Christopher Whalen, 646-731-2366
Senior Managing Director
cwhalen@kbra.com
or
Joe Scott, 646-731-2438
Managing Director
jscott@kbra.com
or
Ben Stewart, 301-969-3186
Associate Director
bstewart@kbra.com
or
Follow us on Twitter!
@KrollBondRating