NEW
YORK, May 24, 2023 /PRNewswire/ -- U.S.
community banks and their larger counterparts will see earnings
drop by double-digits in 2023, according to S&P Global Market
Intelligence's annual U.S. Bank and U.S. Community Bank Market
Reports. The two new reports conclude that U.S. bank earnings will
fall markedly this year as liquidity pressures weigh on net
interest margins, while credit costs rise.
Published by S&P Global Market Intelligence's financial
institutions research group, the reports find that U.S. banks will
respond to the liquidity crunch by building reserves for loan
losses, slowing loan growth and building cash on their balance
sheets. Those actions in conjunction with higher funding costs will
put pressure on margins and earnings. As margins come under
pressure, banks will continue to build reserves for loan losses in
the face of an increasingly uncertain economic environment.
"Significant tightening from the Federal Reserve since
March 2022 and customers moving cash
out of banks into higher-yielding alternatives have put pressure on
liquidity across the banking industry," said Nathan Stovall, director of financial
institutions research at S&P Global Market Intelligence.
"More recently, liquidity pressures grew in the wake of the second,
third and fourth-largest bank failures in U.S. history, sparking
concerns about funding. The increased funding costs will serve as a
headwind to banks' net interest margins, but the challenge appears
to be an earnings issue rather than a threat to safety and
soundness of the banking system."
Key findings from the US Bank Market Report:
- U.S. bank earnings are expected to fall 18.3% in 2023 as
deposit outflows and notably higher deposit costs weigh on net
interest margins.
- Higher interest rates have boosted loan yields but have also
led to growing pressures on bank liquidity. Funding costs will rise
at a quicker pace than earning-asset yields in 2023, causing net
interest margins to contract by 10 basis points in 2023 and another
7 basis points in 2024.
- Deposit betas, or the percentage of rate changes banks pass on
to customers, will more than double in 2023 from year-ago
levels.
Key findings from the US Community Bank Market
Report:
- U.S. community bank earnings are expected to fall 22.6% in 2023
as deposit outflows and notably higher deposit costs weigh on net
interest margins, while credit trends begin to normalize.
- Higher interest rates have boosted loan yields but have also
led to growing pressures on bank liquidity. Funding costs will rise
at a quicker pace than earning-asset yields in 2023, causing net
interest margins to contract by 33 basis points in 2023.
- Deposit betas, or the percentage of rate changes banks
pass on to customers, will more than triple the level witnessed in
2022 due to liquidity pressures in the market.
- Community banks will tighten lending standards to
preserve liquidity and adjust to stress in the markets. S&P
Global Market Intelligence expects community banks to maintain
tighter lender standards — which surfaced yet again in the Federal
Reserve's latest senior loan officer survey in April 2023 — in the near term and the pull back
in lending will contribute to credit costs moving higher for the
group.
To request a copy of the 2023 U.S. Community Bank Market Report
and/or the 2023 U.S. Bank Market Report, please contact
press.mi@spglobal.com.
S&P Global Market Intelligence's opinions, quotes, and
credit-related and other analyses are statements of opinion as of
the date they are expressed and not statements of fact or
recommendation to purchase, hold, or sell any securities or to make
any investment decisions, and do not address the suitability of any
security.
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Media Contact
Katherine Smith
S&P Global Market Intelligence
+1 781-301-9311
katherine.smith@spglobal.com
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SOURCE S&P Global Market Intelligence