Fitch: US Community Banks Face Regulatory, Strategic Challenges

NEW YORK--(BUSINESS WIRE)-- Link to Fitch Ratings' Report: U.S. Banks: Large Community Bank Peer Review (Strategic and Regulatory Challenges Remain)https://www.fitchratings.com/site/re/887621

Large US community banks will face strategic challenges through the medium term from a combination of an increased regulatory burden and normalizing credit costs, says Fitch Ratings.

Earnings pressures are likely to rise and persistent high lending growth could add to asset quality, capital, and liquidity risks down the line.

Fitch published a special report today that assesses the findings of the large community bank peer review we recently conducted. Regulatory challenges remain a key theme for the sector's outlook. This is especially the case for the larger community banks approaching USD10bn in assets, which face a substantial increase in their regulatory burden should they cross over the USD10bn threshold. Combined with a challenging earnings environment, increased compliance burdens have contributed to a rise in M&A activity in the sector, and Fitch believes that a high level of transactions will continue to occur.

The looming normalization of interest rates is another key issue for the sector. The prolonged low-rate environment has contributed to significant uncertainty. Assessing the impact on net interest income from rising rates is difficult owing to the challenge of predicting how depositors and borrowers will react given the current unusually long period of low rates.

High loan growth remains a key constraint on community banks' credit profiles, especially as it has occurred at a time of constrained economic growth, which could point to loosened underwriting standards or expansion into new markets. Ratings could come under pressure should strong lending growth result in asset quality, capital, or liquidity deterioration.

Community banks have increased their issuance of subordinated debt over the past year to support their total capital ratios, and Fitch believes that this trend should continue in the medium term. Continued high lending growth and acquisitions and the desire to increase regulatory legal lending limits will all contribute to further subordinated debt issuance by community banks.

Community banks continue to benefit from strong deposit franchises and reasonably strong capitalization levels relative to ratings and balance sheet risk. All of the banks in Fitch's peer group exceed regulatory well capitalized minimums, with an average common equity Tier 1 capital ratio of 12.9% at end-2Q16.

Fitch outlined the results of its large community bank peer review in its latest special report, published on Sept 19. The report is available to subscribers by clicking on the link above or at www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160920006278/en/

Fitch Ratings
Christopher Van Bell
Associate Director
Banks
+1 212 908-0777
33 Whitehall Street
New York, NY
10004
or
Christopher Wolfe
Managing Director
Banks
+1 212 908-0771
or
Justin Patrie
Fitch Wire
+1 646 582-4964
or
Media Relations:
Hannah James, New York, + 1 646-582-4947
Email: [email protected]

Source: Fitch Ratings

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• onsemi downgraded by TD Cowen after Synaptics deal clouds growth story
• Hyperscale Data acquires 48.5 acres to expand Michigan campus
• Kite Realty sells City Center in White Plains for $50 million