S&P Global has followed Moody’s in reducing its credit ratings and outlook on multiple US regional banks. The rating agency cited higher funding costs and concerns in the commercial property sector as factors that could potentially test the credit strength of these lenders.
The US Federal Reserve’s relentless campaign of rate hikes has resulted in increased deposit costs for banks. In order to retain depositors and prevent them from seeking higher-yielding alternatives, banks have had to pay out higher interest rates.
S&P downgraded the ratings of Associated Banc-Corp and Valley National Bancorp due to funding risks and their greater reliance on brokered deposits. Additionally, UMB Financial, Comerica Bank, and KeyCorp were also downgraded by S&P, as these banks experienced significant deposit outflows and faced prevailing higher interest rates. S&P also revised the outlook of S&T Bank and River City Bank from “stable” to “negative”, citing their increased exposure to the commercial property sector.
This action by the rating agency will result in higher borrowing costs for the struggling banking sector, which is currently trying to recover from the crisis earlier this year. The collapse of Silicon Valley Bank and Signature Bank had caused a loss of confidence and triggered a run on deposits at various regional lenders.
Borrowing costs have also risen globally. S&P’s downgrade comes a few weeks after Moody’s made similar downgrades, lowering the ratings of 10 US banks and placing six others, including Bank of New York Mellon, US Bancorp, State Street, and Truist Financial, under review for potential downgrades.
An analyst at Fitch, the third major rating agency, stated in an interview with CNBC last week that several US banks, including JPMorgan Chase, could face downgrades if the operating environment for the sector were to deteriorate further.
Source: Reuters
