Despite growing economic and financial uncertainty, the U.S. banks generally reported strong first quarter results, but the outlook for the year ahead is cautious, Morningstar DBRS Inc. suggests.
In a new report, the rating agency said that most banks had solid results in the first quarter, driven by rising net interest income and strong trading revenues, despite the dimming prospects for economic growth and growing uncertainty due to the U.S. trade war.
“The key word on many of the earnings calls was “uncertainty” as the banks grapple with the impact of rising and shifting tariffs on the U.S. economy and ultimately their customers,” the report noted.
Against that backdrop, loan growth “remained subdued” as dimming confidence and elevated interest rates weighed on demand — and deposit growth outpaced loan growth for most banks, it said.
“For the remainder of the year, we continue to expect the ongoing repricing of assets and deposit cost stabilization will boost net interest income and net interest margins,” it said — although, the growing uncertainty also led banks to maintain, or marginally increase, their loan loss provisions in the latest quarter.
At the same time, banks were also reluctant to start returning more capital to shareholders, and instead opted to maintain their strong capital positions, it noted.
“With most U.S. banks building capital in 2024, we had previously expected capital management activities to accelerate in 2025. However, given the increased uncertainty as well as the lack of clarity on any revision to capital requirements, we expect many banks will continue to retain capital at elevated levels,” DBRS said.
Amid the heightened uncertainty, DBRS said that “most U.S. banks maintained their previous guidance for performance in 2025 while signalling results could come in at the lower end of ranges.”