U.S. Banks: Credit Quality Normalization Continues, But Remains Manageable

This commentary reviews the U.S. banking industry's credit quality amidst ongoing challenges, emphasizing its resilience.

Key highlights include:
• Credit quality normalization continues across the U.S. banking industry but remains manageable, in our view, as non-current loans and credit losses remain well below long-term historical averages.
• The industry has been building reserves as it incorporates more stringent macro projections, with current reserve coverage at a three decade high.
• Our view is that the industry remains well positioned to weather any potential storms given improved risk management practices and a de-risking of the industry's loan portfolio over the past decade.

“We expect credit losses across the industry to continue trending higher as the lagged effects of accelerated interest rate hikes slow the U.S. economy. Nonetheless, the industry's reserve coverage ratio is currently at a three decade high, which gives us comfort in the near term.,” said Eric Chan, Vice President-Global FIG.