The overall risk inherent in the U.S. banking sector remains stable, although the factors behind this assessment have changed, Standard & Poor’s Rating Services said Tuesday.
S&P said in a press release that the risk of economic imbalances has “ebbed” as the U.S. economy concludes its deleveraging cycle, but new potential areas of worry have arisen.
“As interest rates remain low for a prolonged period and the burden of legacy losses diminishes, we anticipate banks may play a more active role in funding corporate loans, including commercial and industrial (C&I) and commercial real estate,” S&P said. “Corporates’ strong appetite for leverage and a growing propensity for shareholder-friendly actions could become an incremental source of credit risk for banks over the next three to five years.”
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Still, S&P said it continues to view the economic risk trend for U.S. banks as stable, and the economic recovery should “gain momentum.”
“We expect house prices to increase by about 4% to 6% on an inflation-adjusted basis in 2014, and we also expect lending to the private sector to increase after four years of losing ground, indicating a gradual shift to the ‘expansion phase’ of the cycle,” S&P said. “Still, the recovery in lending is likely to be uneven, in our view, and we expect business lending to grow with greater momentum than consumer lending over the next couple of years.”