S&P Global Ratings has lowered the credit ratings of five US regional banks and revised its outlook for several others, following a similar move by Moody’s earlier this month. The rating agency cited the challenging operating conditions, funding risks and weaker profitability as the main reasons for its actions.
S&P cuts ratings by one notch for five banks
The five banks that saw their ratings cut by one notch are KeyCorp, Comerica Inc., Valley National Bancorp, UMB Financial Corp. and Associated Banc-Corp. S&P said these banks have experienced large deposit outflows, higher interest rates on deposits, and a reliance on brokered deposits, which are more costly and less stable than core deposits.
S&P also said these banks have a relatively high exposure to commercial loans, which are more vulnerable to economic downturns and credit losses. The rating agency expects the banks’ profitability to remain under pressure due to the low interest rate environment, higher credit costs and increased competition.
S&P assigns negative outlooks to some banks
S&P also revised its outlook for some banks to negative from stable, indicating a potential downgrade in the future. These include S&T Bank and River City Bank, which have a high concentration of commercial real estate loans, and First Horizon Corp., which faces integration risks after its merger with Iberiabank.
The rating agency said it could lower the ratings of these banks if their asset quality deteriorates significantly, their capital ratios decline below regulatory minimums, or their funding and liquidity profiles worsen.
S&P maintains stable outlooks for most banks
Despite the negative actions, S&P said it still has a stable outlook for 90% of the banks it rates, reflecting its view that most banks have adequate capital and liquidity buffers, diversified revenue sources and prudent risk management. The rating agency said it could raise the ratings of some banks if they improve their profitability, asset quality and funding stability.
S&P’s move comes after Moody’s downgraded 10 regional banks by one notch and placed six larger banks on review for possible downgrades earlier this month. Moody’s also cited the difficult operating environment, funding challenges and credit risks as the main drivers of its actions.
The US banking sector has been facing a crisis of confidence since the collapse of Silicon Valley Bank and Signature Bank earlier this year, which triggered a run on deposits at several regional banks. The Federal Reserve and the FDIC have intervened to provide emergency liquidity and guarantee deposits, but the situation remains fragile.
