Moody’s Investors Service has downgraded the outlook for global banks. Slowing growth, low interest rates, and volatile operating conditions turned the ratings firm’s outlook on banks from stable to negative.
Trade tensions between the U.S. and China “appear entrenched, with negative consequences for banks in those countries as well as in other export-oriented economies and for banks funding trade,” Moody’s said.
Moody’s noted that there is an increasing risk of recession in both the U.S. and Europe. This is compounded by slowing growth in Asia Pacific and emerging markets, and “will lead to deteriorating loan quality and higher loan-loss provisioning costs for banks.” Political risk will also be a significant source of uncertainty. Moody’s also cut its outlook on British lenders from stable to negative earlier this week.
Moody’s said Brexit uncertainty has eroded “the country’s growth prospects.” Low interest rates, furthermore, are undermining lenders’ profitability. Moody’s warned that the “deteriorating” operating environment for UK lenders is “weighing on their asset quality and profitability”.
Laurie Mayers, associate managing director at Moody’s, said: “Persistently low interest rates and increased mortgage market competition” had dented net interest margins — a metric that tracks the difference in banks’ cost of funding and the rates they charge to borrow.The UK’s economy is weakening, making it more susceptible to shocks, and prolonged uncertainty over Brexit has reduced the country’s growth prospects.”
After UniCredit SpA announced a plan to cut 8,000 jobs, the total number of bank jobs eliminated in 2019 reached 75,000, most of them in Europe, which is soured by negative interest rates and economy.
Canada’s biggest banks are slashing global workforce, too. Bank of Montreal (BMO), which is Canada’s fourth-largest bank, slashed its global workforce by 5 percent.