Standard and Poor’s on July 17 said its base case for the global banking sector is for ratings stability to continue over the next one to two years.
About 75% of bank ratings globally are on stable outlook, the agency said.
Of the remainder, the percentage of negative and positive outlooks is about the same. The balance differs by region, however.
Across the Americas, for example, there are materially more banks on negative outlook than positive outlook, S&P said.
“Our outlook for global credit conditions embraces a soft-landing narrative. This increases our confidence that our base case for ratings stability across most of the global banking universe will persist,” said S&P Global Ratings credit analyst Gavin Gunning.
“Our overarching view and one-page summaries for 86 banking jurisdictions, titled, “Global Banks Country-By-Country Midyear Outlook 2024: Searching For Calmer Waters,” S&P said.
Our view on economic and industry risk trends supports the base case for ratings stability. Across the 86 jurisdictions where we rate banks, we see economic risk trends affecting banking sector creditworthiness as stable in 77 jurisdictions. Furthermore, we see industry risk trends as stable in 76 jurisdictions.
Non-traditional risks affecting business models. These risks include digitalization, generative AI, climate change, and cyber risk.
The pace at which banks pass on lower rates to borrowers will be gradual. In the meantime, borrowers face high interest rates and borrowing costs. We anticipate that not all borrowers may be able to stay the distance.
The property cycle will continue to be a key risk for banks over the next six to 18 months.
Stronger buffers since the global financial crisis will help buttress banks against economic cycles and help ensure ratings stability.
“Despite regulatory reform over the past 15 years, events of 2023 showed banks are not bullet proof. We expect regulators’ efforts to strengthen the industry will continue into 2025 and beyond,” said S&P Global Ratings credit analyst Emmanuel Volland.