Fitch: U.S. Bank Industry Outlook Remains Strong
Better liquidity and capital, as well as improving asset quality and stricter regulation of U.S. banks, continue to support Fitch’s stable rating outlook for the U.S. banking industry.
Fitch revised the outlook on the industry to stable from negative in June 2010, at a time when banks’ progress toward strengthened fundamentals was underway, despite a challenging economic environment. Capital positions were being built and asset quality trends were making a positive turn. These trends have continued, and banks’ capital, liquidity and nonresidential loan performance are at all-time highs, Fitch said.
According to Fitch, U.S. banks have been largely successful over the last three years in adapting to a host of legislative and regulatory challenges that have raised costs and increased operational complexity. In spite of these changes, U.S. banks’ operating results have continued to improve, and tougher regulation has generally contributed to stronger capital and liquidity profiles for rated banks. Fitch regards stricter bank regulation as generally positive for creditors, despite the ongoing difficulties faced by banks in boosting equity returns.
Fitch remains focused on the potential for offsetting risks related to ongoing regulatory uncertainty and litigation to erode credit quality across the industry. The low interest rate environment continues to pressure net interest margins and raises the risk that banks will stretch for yield. The strength of the housing recovery remains uncertain and home equity resets could pose a risk in a rising rate scenario. However, these negative factors are balanced out by the positive trends noted above and stronger bank fundamentals overall, Fitch said.