Moody's Followed by S&P Downgrades US Bank Credit Ratings

Five Regional Banks Downgraded by One Grade Each

One of the three major global credit rating agencies, S&P, has downgraded the credit ratings of five U.S. regional banks, including Comerica Bank, and lowered the outlooks for some banks.

On the 21st (local time), S&P announced that it would downgrade the credit ratings of five banks?Associated Bancorp, Valley National Bancorp, UMB Financial Corporation, Comerica Bank, and KeyCorp?by one notch each.

Large-scale fund outflows and high funding costs, as well as a high dependence on brokered deposits, were cited as the reasons for the downgrades. S&P warned that funding risks and deteriorating profitability could put the credit soundness of the U.S. banking sector to the test.

In a report published that day, S&P stated, "The rapid rise in interest rates is putting pressure on the funding and liquidity of U.S. banks," and forecasted that "as the U.S. continues its tightening stance, deposits at banks insured by the Federal Deposit Insurance Corporation (FDIC) will continue to decline."

Due to high exposure to commercial real estate loan default risks, S&P downgraded the outlooks for S&T Bank and River City Bank from 'stable' to 'negative,' while maintaining the negative outlook for Zions Bancorporation.

[Image source=AP Yonhap News]

This move by S&P reflects ongoing concerns about credit risks in the regional banking sector triggered by the collapse of Silicon Valley Bank (SVB) in March. Experts say that the potential for credit risk and credit tightening among regional and small banks will have a delayed ripple effect on the real economy, and they expect further downgrades for U.S. banks through the first half of next year.

Earlier, Moody's downgraded the credit ratings of 10 small and mid-sized banks on the 7th, citing increased funding costs, profitability deterioration due to slowing loan growth, and heightened soundness issues. Moody's also placed six banks, including systemically important banks (G-SIBs) such as BNY Mellon and State Street, under review for possible downgrades.

Following Moody's downgrades, the KBW Bank Index, which tracks major U.S. financial stocks, fell nearly 7%, marking the worst monthly decline since the SVB crisis in March.

Bloomberg News pointed out, "The Federal Reserve's excessive rate hikes are eroding bank asset values and increasing default risks on commercial real estate loans, weakening banks' balance sheets."

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