Global banks will rake in solid profits in 2023 shielded from an increase in delinquent loans, rising interest rates and solid reserves, said Moody's Investors Service on Friday.
"Banks will report solid profits in 2023," said Edoardo Calandro, VP-Senior Credit Officer at Moody's.
"Rising interest margins will enable continued capital generation o n top of already strong capital, while liquidity and funding will remain robust, even as gloomy economic conditions across much of the world cause loan performance to deteriorate. Bank creditworthiness will remain broadly stable," Calandro added.
According to Moody's banks in North America, the Middle East, some Western European countries and Asia Pacific (excluding China) will benefit most from higher rates.
Problem loan formation will likely be greater in highly dollarized emerging markets, while many banks in energy-producing countries will benefit from higher oil prices, Moody's said.
Loan losses will be kept contained by stricter underwriting standards over the last 10 years, reduced exposure to riskier asset classes and strong loan-loss provisioning.
Capital ratios will remain broadly stable across regions, as solid profitability allows banks to generate capital internally and as regulatory requirements remain high.
Profit retention will outpace rising risk weighted assets and shareholder distributions, Moody's said.
Deposits will likely remain well above pre-pandemic levels for at least the next 12 to 18 months, and bail-in debt requirements have now been largely met in most advanced economies.
This, and a strong starting point mean that banks will remain well funded throughout 2023 even while central banks continue to drain liquidity through quantitative tightening, Moody's said.