S&P Report Offers Dim View for Banks in 2012

Paul Ausick

With the global economy growing in slow motion, it is perhaps to be expected that US banks don’t have a bright forecast for the year ahead. An analyst at Standard & Poor’s puts it this way:

Credible factors that can spur meaningful economic expansion in 2012 have diminished, even as the Fed has stated that the economy has been expanding moderately so far in the fourth quarter of 2011. While domestic risks may have diminished somewhat, the bigger question is how much the world economy will slow down.

The factors weighing bank profits include less consumer borrowing, low interest rates on loans, and a slowdown in international trade. The new regulatory environment gets some of the blame, as well, along with the sovereign debt crisis in Europe.

More from S&P:

Constraints on revenue growth are the key hurdle facing U.S. banks as 2012 approaches. Standard & Poor’s baseline forecast is still for modest overall loan growth in the next two years. Weaker global demand is likely to curtail credit growth, and ongoing regulatory constraints may weaken margins, once again presenting revenue challenges for the industry.

The ratings agency expects lower top-line growth in 2012, which could lead to a loss of credit quality among US banks. A second recession would mean that “[o]ngoing credit quality improvement could come to a screeching halt.”