US Banks Seen on Better Footing for 2023 After Q4 Loss - Fitch Ratings

WASHINGTON (Sputnik) - US banks are expected to be on firmer footing in 2023 after a generally weak quarter at the end of last year as financial institutions built loan loss reserves while normalizing credit losses, Fitch Ratings said on Tuesday.

"Deposit flows and deposit costs are likely to garner more focus this year as most banks experienced a third straight quarter of net deposit outflows," the ratings agency said in a statement.

In spite of that, overall performance was expected to improve, it said. "Barring a deep recession, strong pipelines and pent up demand could support a moderate recovery in 2023," Fitch Ratings said.

Top-notch banks such as JPMorgan Chase & Co and Bank of America reported stellar profits for the fourth quarter of 2022. But the rest of the industry, made up of prominent names such as Citigroup and average hitters like Wells Fargo, had disappointing results for the final three months of last year.

JPMorgan, the largest US bank with a balance sheet total of $3.31 trillion, saw a 6% year-on-year profit increase on an expanded revenue of $35.57 billion, versus an estimated $34.3 billion. Bank of America reported a 2% profit increase and 11% revenue hike to $24.5 billion.

Citigroup, on the other hand, witnessed a 21% decline in profits year-on-year, although its $18 billion in revenues slightly bested predictions of $17.9 billion. Wells Fargo posted the biggest profit drop of 50% year-on-year, driven by a $2.8 billion operating loss to resolve regulatory issues from its past. Revenues came in at $19.66 billion, just under estimates of $20 billion.

Despite the weaker trends, exceptionally strong net interest income growth and net interest margin expansion helped many banks to experience double-digit loan growth year-on-year, Fitch Ratings said.

"While liquidity remains strong for the US banking industry, loan to deposit ratios rose off of multi-decade lows in 2022, which should continue this year," it said.

Fitch Ratings concluded by saying that the outlook for US banks was consistent with its stable ratings for the sector in 2023, implying "sufficient headroom" to absorb weaker financial conditions typical of a moderate recession.