- S&P Global Ratings expects U.S. banks to face continued market volatility in 2019 stemming from a slowdown in economic growth, policy uncertainty, rising rates, and monetary tightening.
- Although it is not our current base, we believe we are incrementally closer to a turn in the credit cycle in 2019. When the credit cycle does turn, bank profitability will come under pressure as imbalances brought on by years of excess liquidity and low rates will flow through banks' income statements and balance sheets.
- Key areas of concern in credit are commercial and industrial (C&I) -- particularly leveraged lending, commercial real estate (CRE), and pockets of consumer credit -- credit cards, auto, and personal loans.
- Separately, fee income could come under pressure as the economy slows and if market valuations decline. Bank revenues in areas like assets and wealth management may also decline because they are tied, in part, to market valuations. Fees for originating and selling mortgage loans could also drop.
- Nevertheless, U.S. bank balance sheets are sound, with higher capital and liquidity levels, and we believe rated banks are well prepared to withstand potentially weakening credit conditions.
- New regulation may result in lower capital and liquidity levels for some (mainly regional) banks. On the other hand, the stressed capital buffer (SCB) proposal could prompt some global systemically important banks (GSIBs) to continue to face higher capital requirements.
- Longer term, from a business standpoint, it will be important for bank management teams to remain vigilant to disruption from technologically sophisticated competitors (fintechs), as well as to the threat of cyberattacks.
- Under our base-case scenario, we expect bank ratings to remain largely stable through 2019. 83% of our operating company ratings currently have stable outlooks, 8% have positive outlooks, and 9% have negative outlooks.