Fitch Ratings is reiterating its stable outlook for the U.S. banking industry, citing improved capital, liquidity, and asset quality, along with the benefits of stricter regulation on banks’ credit quality.
The rating agency notes that it revised its outlook on the U.S. banking industry to stable from negative in June 2010, when banks had started strengthening fundamentals — boosting capital and improving asset quality — despite a challenging economic environment.
“These trends have continued, and banks’ capital, liquidity and nonresidential loan performance are at all-time highs,” it says.
Fitch notes that U.S. banks have also been largely successful over the last three years in adapting to legislative and regulatory reforms that have raised costs and increased their operational complexity.
“In spite of these changes, U.S. banks’ operating results have continued to improve, and tougher regulation has generally contributed to stronger capital and liquidity profiles,” it says, adding that it sees stricter bank regulation “as generally positive for creditors, despite the ongoing difficulties faced by banks in boosting equity returns.”
That said, it also remains on guard to the ongoing risk of regulatory uncertainty and litigation eroding credit quality across the industry.
The low interest rate environment also continues to pressure net interest margins and raises the risk that banks will stretch for yield, Fitch says. And, it notes that the U.S. housing recovery remains uncertain. However, these concerns are balanced out by the stronger bank fundamentals overall, it says.