Most of the large U.S. banks have reported relatively weak earnings in the third quarter, notes Fitch Ratings, highlighting the growth challenges faced by the banking industry in the year ahead.
The rating agency says that “significant declines in mortgage banking revenues and weak fixed-income trading results were the primary drivers” of weaker bank earnings. “Ongoing reserve releases and cost reduction initiatives have helped offset revenue pressure to some degree, but a pickup in loan demand will be critical to driving any sustained revival in bank earnings growth over coming quarters,” it says.
In the third quarter, loan growth remained muted however, Fitch reports, as quarterly mortgage originations fell off by roughly 17% on average for the largest players, as a sharp rise in mortgage rates reduced demand and home affordability.
Banks continue to report improvements in asset quality and lower net charge-off levels, Fitch says. However, the rate of improvement is slowing somewhat, it notes.
One bright spot is capital ratios, which continue to improve across the industry, Fitch says, due to retained earnings growth and relatively conservative payouts governed by the U.S. stress-testing process.