S&P’s Global Banks Midyear 2019 Outlook: “Low For Longer”

11-Jul-2019

Credit conditions remain supportive for banks globally going into third-quarter 2019, even if trade and geopolitical tensions are undermining confidence and economic momentum and pressure on profitability remains, S&P Global Ratings said today.

The trade battle between the U.S. and China as well as geopolitical tensions are undermining confidence and economic momentum across the globe. It has prompted the U.S. Federal Reserve and the European Central Bank to recently take a more dovish stance, leading to financing conditions that remain broadly supportive for banks worldwide. That said, "low for longer" interest rates and increasing competition from nonbank players, including fintechs, are putting more pressure on bank profitability and business models.

"The low for longer monetary policy is creating a headache for banks, at a time when the profitability of many is already strained and new forms of competition are emerging," said S&P Global Ratings credit analyst, Emmanuel Volland.

Key takeaways from the report:

Credit conditions remain supportive for banks going into third-quarter 2019, even if trade and geopolitical tensions are undermining confidence and economic momentum.

The Fed's and ECB's responses to counter the slowdown are positive for banks' funding conditions but continue to call into question their business models given that interest margins will remain low for longer. The pressure on profitability is higher in Europe and Japan.

The vast majority of outlooks on banks is stable globally, and the bias has become less positive in Europe.

Credit losses have likely bottomed out in many countries, while capitalization is unlikely to improve further.

The steady push to make systemic banks resolvable continues, through a variety of approaches across the world.

Technology is disrupting retail banking across the globe. Banks' ability to respond will depend on their digital readiness.

This report does not constitute a rating action.