Moody's on Dec. 7 released its 2018 outlook for U.S. and Canadian banks, saying it remains "stable" for the former, given the environment supportive of improved profitability, but "negative" for their northern neighbors, due to the Canadian government's new bank resolution regime.
The rating agency expects U.S. real GDP to climb to approximately 2.3%, while unemployment decreases to 4.0%. Banks can look forward to revenue growth outpacing expense increases, vice president Rita Sahu said in the news release, as rising interest rates provide a boost to net interest income. Areas of potential concern include auto loans and credit cards, with auto loan delinquencies having topped pre-crisis levels. But the banks' capital ratios are strong enough to take the losses in an adverse economic scenario and still maintain regulatory minimums, according to the rating agency.
In Canada, the proposed regime means a lower likelihood of government support. That said, "stand-alone credit drivers are mostly sound," senior vice president David Beattie said in the Moody's release — with the caveat that banks' asset quality has "yet to be tested [by] a serious economic downturn." Mortgage debt has more than doubled in the past decade, the rating agency noted, while "non-mortgage consumer loans are particularly vulnerable to shocks."
U.S. banks have a median baseline credit assessment of "a3," comparing positively with the global median of "ba1." Canadian banks, meanwhile, have among the highest baseline credit assessments, worldwide.
