For the first time since March 2023 credit ratings agency Moody's Ratings upgraded the global banking sector from negative to stable.
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 stabilization of economic growth and monetary easing will support operating environments for banks, alleviate pressure on their asset quality and help their deposit growth recover,” said David Yin, vice president and senior credit officer at Moody’s in a statement.
Moody's assessments play an important role in determining the credit-worthiness of banks, governments and various assets.
In the coming year, Moody’s expects the G-20 economies will move from the cyclical recovery that is typical following a recession to slower but more sustainable rates. G-20 members are: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russia, Saudi Arabia, South Africa, Türkiye, the United Kingdom, the United States, the African Union and the European Union.
While falling rates are widespread among G-20 members, the Federal Reserve last month notably lowered interest rates by 0.25% to a range of 4.5% to 4.75%, the second rate cut of the year. Also notable, in October, the European Central Bank (ECB) lowered its key interest rates by 0.25% to a range of 3.25% to 3.65%.
The lower rates also contributed to another Moody's prediction: deposit growth will continue to moderately recover next year as investment products become less desirable. U.S. bank deposits peaked in April 2022 at $18.2 trillion, bottoming out a year later at $17.2 trillion and, in spite of a slow recovery since that time, have yet to regain the previous high.
“However,” Yin added, “geopolitical conflicts, trade tensions and post-election policy changes in the US create significant uncertainty and risks.”
Among a number of risks listed in the report are a number of geopolitical conflicts. “The ongoing conflicts in Europe and the Middle East, and increasing tensions between China and the US add significant uncertainty to the outlook for the global economy,” the Moody’s authors wrote. “Governments and businesses are working to build resilience by diversifying supply chains, but the unpredictability of geopolitical developments means there may be new shocks.”
Another major risk is uncertainty around how U.S. policy might shift under President-elect Donald Trump. “Growing protectionism, including restrictions on cross-border trade and investment flows, and immigration, can weigh on global output. Greater trade protectionism in the US will be a clear risk to both US and global economic expansion.”
