Despite expectations for weaker economic growth and higher inflation due to the latest conflict in the Middle East, financial metrics for the banks in the developed markets are expected to remain resilient, according to Fitch Ratings.
In a report published Monday, the rating agency noted that it recently revised its GDP forecasts down in a number of developed market economies, largely due to the negative effects of the U.S.-Iran war, and its impact on global oil prices.
At the same time, elevated oil prices are expected to keep inflation higher than previously expected, it noted.
That combination of weaker growth and higher inflation will weigh on banks’ credit quality, Fitch said, as it expects impaired loans to tick higher in some markets in this environment.
However, the rating agency also said that developed market banks are expected to remain resilient in the face of deteriorating macro conditions.
For one, Fitch said stronger inflation will result in interest rates staying higher for longer, which will be positive for banks’ profitability.
“Our projections for operating profit/risk-weighted assets are broadly unchanged, thanks to supportive financial markets and the margin lift from higher-for-longer interest rates,” it said.
Additionally, the rating agency has trimmed its projections for the ratio of impaired loans to gross loans in most developed markets for 2026, which, it said, “reflects banks’ moves to clean up their loan books and their more selective approach on underwriting new business.”