Credit rating agency Moody’s Ratings today upgraded the global banking sector from negative for the first time since March 2023.
In explaining its bank upgrade, the agency cited monetary easing among Group of 20 members, as well as interest rate cuts that will improve asset quality and robust funding and liquidity in most systems.
“We have changed the global outlook for banks to stable from negative, reflecting our expectation that stabilizing economic growth and monetary easing will support the operating environment for banks, ease pressure on their asset quality and help deposit growth recover,” said David Yin, vice president and senior credit officer at Moody’s in a statement.
Moody’s ratings play an important role in determining the creditworthiness of banks, governments and various assets.
In the coming year, Moody’s expects the G-20 economies to shift from the cyclical recovery typical of post-recession to slower but more sustainable rates. The G-20 members are: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, Great Britain, United Kingdom, African Union and European Union.
While falling rates are widespread among G-20 members, the Federal Reserve last month significantly cut interest rates by 0.25% to a range of 4.5% to 4.75%, the second rate cut this year. It is also important that in October the European Central Bank (ECB) lowered its key interest rates by 0.25% to a range of 3.25% to 3.65%.
Lower rates also contributed to another Moody’s forecast: deposit growth will continue to recover modestly next year as investment products become less desirable. US bank deposits peaked in April 2022 at $18.2 trillion, bottomed out at $17.2 trillion a year later and, despite a slow recovery since then, have yet to return to their previous peak.
“However,” Yin added, “geopolitical conflicts, trade tensions and policy changes following the US election create significant uncertainty and risks.”
Among the series of risks mentioned in the report are numerous geopolitical conflicts. “Ongoing conflicts in Europe and the Middle East and rising tensions between China and the US add significant uncertainty to the outlook for the global economy,” Moody’s authors wrote. “Governments and businesses are working to build resilience by diversifying supply chains, but the unpredictability of geopolitical developments means there could be more shocks.”
Another major risk is uncertainty about how US policy might change under President-elect Donald Trump. “Rising protectionism, including restrictions on cross-border trade and investment flows and immigration, may affect global production. Greater U.S. trade protectionism will be a clear risk to the expansion of the U.S. and global economy.”
