Moody's issues risk warning for global banks

In a report published on the outlook for the global banking sector, Moody’s stated that the weakness observed in the global economy and the inability of borrowers to meet their loan payments are expected to put pressure on bank profitability, which means banks will face a negative outlook in 2024.

The report noted that interest rate hikes implemented by central banks and rising unemployment rates in developed economies could weaken the asset quality of global banks.

The Moody’s report also emphasized that exposures to the real estate sector in the US and Europe pose an increasing risk to the outlook for global banks for the coming year.

SIGNAL OF SLOWDOWN IN GLOBAL ECONOMY

The report, which stated that monetary policy is expected to remain tight next year, noted that this will cause a slowdown in the global economy despite current expectations that central banks will move toward interest rate cuts in the future.

The report included the statement, “China's growth is expected to slow (next year) due to stagnant consumer and business spending, weak exports, and the ongoing real estate crisis.”

The Moody’s report projected that the profitability of global banks will likely be suppressed next year due to high financing costs, low loan growth, and the accumulation of reserves by banks to cover potential defaults.

In his assessment included in the report, Moody’s Senior Credit Officer Felipe Carvallo stated, “While funding and liquidity will create challenges (for the sector next year), bank capitalization will remain stable, benefiting from organic capital generation and moderate loan growth, and also supported by the capital accumulation of some of the largest US banks.”