NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency’s (KBRA) releases a timely report on the U.S. banking sector amid the current market turmoil. In this report, KBRA outlines its view that the U.S. banking sector’s rating outlook remains stable despite ongoing uncertainties due to the coronavirus (COVID-19) pandemic.
Key takeaways are:
- Solid financial metrics provide a strong starting point going into this economically uncertain period. Profitability and capitalization remain sound, while problem loans have hovered around multi-year lows.
- There are a handful of rated banks that have direct (Phase 1) exposure to industries experiencing sudden shocks, notably energy and hospitality. These institutions are being monitored carefully with possible rating actions/outlook changes as needed.
- The vast majority of rated U.S. banks are exposed to a potential broad-based (Phase 3) impact in which consumer and commercial confidence is negatively affected and the economy slows meaningfully.
- Under this scenario, problem loans could grow considerably from a very low base yet remain manageable in the context of core earnings, reserves, and capital. Importantly, tangible common equity levels are managed at much higher levels versus before the 2008 financial crisis.
- Net interest income will remain under pressure due to the Fed’s recent 100 basis point (bp) cut in short-term interest rates following a cut of 50 bps in early March. In this report, we review the potential impact and conclude that net interest income generation will remain an important credit strength for U.S. banks.
- Credit profiles of major U.S. banks are materially stronger than in the past. Profitability for these institutions will likely diminish in the near term in tandem with reduced capital markets activities. Capital and liquidity positions are expected to remain comfortable.
To view the report, click here.
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KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider, and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.