Ratings agency Fitch has warned that some US lenders are at risk due to a weakening of credit quality
Ratings agency Fitch has warned that some US lenders are at risk due to a weakening of credit quality.
Consumer loan losses at US financial institutions are at unsustainable cyclical lows with a more meaningful amount of credit deterioration expected in the near to medium term Fitch warns.
Its latest assessment of the market highlights that individual lenders will be affected by weaker credit performance depending on the diversity of their lending activities and the capital buffers they have in place to mitigate losses.
It therefore suggests that monoline lenders are more exposed to risk from weakening consumer asset quality.
On a positive note, Fitch notes that US consumers are in a generally stronger financial condition than they were before the recession with low unemployment, record high net worth, and debt-service-ratio below the long-term average.
The agency forecasts growth for the US economy in 2017 and 2018 but warns that rising interest rates will challenge consumer asset quality. It also believes that rising interest rates “re part of long-term monetary policy normalization that is aligned with current macroeconomic conditions and the outlook.”
Mortgage lenders’ tighter restrictions means that this sector is not seen as the largest potential risk. Credit cards and sub-prime auto loans are the biggest threat to overall credit quality but less of a risk to the financial system than the mortgage market was ahead of the financial crisis.
“The potential systemic impacts of a rapid deterioration in either credit card or auto lending are limited relative to pre-crisis residential mortgage lending. Both segments are much smaller than residential mortgage debt with shorter loan durations and smaller loan balances,” Fitch says.
Consumer loan losses at US financial institutions are at unsustainable cyclical lows with a more meaningful amount of credit deterioration expected in the near to medium term Fitch warns.
Its latest assessment of the market highlights that individual lenders will be affected by weaker credit performance depending on the diversity of their lending activities and the capital buffers they have in place to mitigate losses.
It therefore suggests that monoline lenders are more exposed to risk from weakening consumer asset quality.
On a positive note, Fitch notes that US consumers are in a generally stronger financial condition than they were before the recession with low unemployment, record high net worth, and debt-service-ratio below the long-term average.
The agency forecasts growth for the US economy in 2017 and 2018 but warns that rising interest rates will challenge consumer asset quality. It also believes that rising interest rates “re part of long-term monetary policy normalization that is aligned with current macroeconomic conditions and the outlook.”
Mortgage lenders’ tighter restrictions means that this sector is not seen as the largest potential risk. Credit cards and sub-prime auto loans are the biggest threat to overall credit quality but less of a risk to the financial system than the mortgage market was ahead of the financial crisis.
“The potential systemic impacts of a rapid deterioration in either credit card or auto lending are limited relative to pre-crisis residential mortgage lending. Both segments are much smaller than residential mortgage debt with shorter loan durations and smaller loan balances,” Fitch says.
