U.S. bank profits in the second half of 2013 will be driven by the pace of economic recovery and loan growth, says Fitch Ratings in a new report.
The rating agency notes that reserve releases were a key driver for bank earnings in the second quarter, but that they are a finite resource for earnings growth. “Future earnings for U.S. banks will be predicated on loan growth and whether the economic recovery accelerates from its current tepid pace,” it says.
Fitch notes that while banks’ net income rose again in the second quarter, compared to both the prior quarter and the same quarter in 2012, revenue growth remains weak.
Mortgage results held steady in the quarter, it notes, despite the recent rise in long-term interest rates. However, Fitch expects mortgage volumes may fall in the second half, “as many borrowers have already refinanced their homes or are unable to refinance due to depressed housing values.”
Fitch notes this is partially offset by rising prices in the housing market. And, it says that banks have also enjoyed resilient capital market activities, ongoing strength in mortgage banking, and a focus on controlling expenses.
During the quarter, U.S. banking regulators announced tougher capital standards, which Fitch says will be positive for financial stability; although, it notes, that there were concessions granted toward smaller banks, and that there are more and tougher regulatory requirements on the way for the larger banks.