Moody's said the outlook for global banking is stable as a broad economic recovery and improved solvency will boost bank creditworthiness in 2018, while S&P Global Ratings sees global credit conditions as "largely favorable" going into the next year.
Moody's forecast a 3.2% GDP growth for the G-20 economies in 2018 on the back of continuing economic growth acceleration that began in 2017. "However, broadly stronger economic growth is not expected to translate into material improvements in bank profitability in the coming year," said Robard Williams, a senior vice president at Moody's.
Williams said the global banking sector will benefit from favorable credit conditions, including improving economic growth and a supportive funding environment.
While improved solvency will reinforce banks' creditworthiness in 2018, Moody's said a key downside risk is relatively high corporate and household debt, which could expose banks to slow growth and interest rate shocks. "An additional vulnerability would be a significant correction in currently elevated asset prices, which would weigh on consumer sentiment and spending, worsen financial conditions for affected firms and push up losses on corporate and consumer loans," Williams added.
Moody's expects banks' cost-reduction efforts to be hindered by technology investments, restructuring and regulatory compliance. Bank profitability across regions remains subdued amid low interest rates and high nonperforming loan levels in some jurisdictions.
Meanwhile, S&P said global credit conditions in 2018 will be "largely favorable" on the back of positive economic expansion and ongoing monetary easing. The agency, however, flagged potential risks such as North Korea-U.S. tensions, asset-price volatility and rising antiglobalization.
S&P said steady growth supports the credit environment of the U.S. and Canada but near-term risks loom from the White House. Europe, the Middle East, and Africa shows strong fundamentals but geopolitical risks continue to hold sway, with the Brexit divorce as the top risk in the region.
Credit conditions in Asia-Pacific have been improving and will continue to remain so in 2018 as economic growth picks up pace, S&P noted. The recovery of Latin America's largest economies, coupled with some external factors, will also place the region in a favorable credit path in 2018.
S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.