Mubasher: Moody’s Investors Service downgraded its ‘stable’ outlook to ‘negative’ for global banks, citing “downside risks,” the London-based agency said on Thursday.
The downgrade was attributed to sluggish economic growth, low interest rates and more volatile operating conditions, all of which would add to the credit challenges facing the banking business worldwide.
“Rising recession risk in the US and Europe, together with slowing growth in [Asia and Pacific economies] and emerging markets, will lead to deteriorating loan quality and higher loan-loss provisioning costs,” Moody’s banking and insurance associate managing director Simon Ainsworth said.
Moreover, a shift to loose monetary policies among central banks as well as the use of negative interest rates in some regions have exacerbated the pressures on banks’ profitability.
“Trade tensions between the US and China appear entrenched, with negative consequences for banks in those countries as well as in other export-oriented economies and for banks funding trade,” Moody’s noted.
Trade feuds could result in a deteriorating bank loan quality in Asia and the US, while the threat of another escalation would stoke financial market sell-off.
On a side, the ratings agency noted that disruptive technologies would continue to fuel innovation across particular business segments such as payments services.
Accordingly, Moody’s urged “incumbent” banks to spend heavily in digital innovation to shore up their businesses in the face of emerging digital competitors.
Although small tech finance companies have not posed a real risk to core businesses of big banks until now, “disruption to payment services is advanced and we expect further encroachment by Big Tech into financial services,” Moody’s banking and insurance associate managing director Antonello Aquino said.