These charts show what has Moody’s worried about regional banks including U.S. Bank and Fifth Third
The Moody's ratings downgrades and outlook warnings on a swath of U.S. banks this week show that the industry still faces pressure after the collapse of Silicon Valley Bank.
Concern over the sector had waned after second-quarter results showed most banks stabilized deposit levels following steeper losses during the March regional banking crisis. But a new issue may cast a pall over small and midsized banks: They've been forced to pay customers more for deposits at a pace that outstrips growth in what they earn from loans.
«Banks kept their deposits, but they did so at a cost,» said Ana Arsov, global co-head of banking for Moody's Investors Service and a co-author of the downgrade report. «They've had to replace it with funding that's more expensive. It's a profitability concern as deposits continue to leave the system.»
Banks are usually expected to thrive when interest rates rise. While they immediately charge higher rates for credit-card loans and other products, they typically move more slowly in increasing how much they pay depositors. That boosts their lending margins, making their core activity more profitable.
This time around, the boost from higher rates was especially fleeting. It evaporated in the first quarter of this year, when bank failures jolted depositors out of their complacency and growth in net interest margin turned negative.
«Bank profitability has peaked for the time being,» Arsov said. «One of the strongest factors for U.S. banks, which is above-average profitability to other systems, won't be there because of weak loan growth and less of an ability to make the spread.»
Shrinking profit margins, along with relatively lower capital levels compared to peers at some regional banks and concern about
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