Moody’s notches up next year’s outlook to stable from negative. The only outlier is Asia, which won’t be doing quite as well as other regions. 

It sometimes seems like global banks live in some parallel universe. As the rest of the world waltzes from one geopolitical crisis to another, with a full-blown war in Ukraine and an overnight regime collapse in Syria adding a fresh layer of uncertainty to a very troubled Middle East, banks are… well... ok about it all.

That is according to Moody’s, which has decided to raise its global bank outlook for next year to stable from negative. This, despite the threat of a wave of Trump 2.0 tariffs, a Jack-in-the-box now you see it, now you don’t South Korean martial law surprise – while in the background the increasingly indebted French government teeters precipitously on the edge.

No Problem

Whatever you say, a significant proportion of the G-7 and G-20 is very much self-absorbed with more existential matters than good, plain-old economics, matters of commerce, financial markets, and investment.

The banks, or the ratings agency covering the sector, however, seem to be saying – bring it on. 

Slow and Sustainable

Moody's believes that most economies in the G-20 will shift from a cyclical recovery next year by growing more slowly and sustainably, helped by recent steps in many jurisdictions to bring interest rates down and ease monetary policy.

«Lower rates, coupled with economic growth, will help improve borrowers’ debt repayment capacity in major systems,» Moody’s maintained.

Better Conditions

All in all, that means the global banks will see better operating conditions, offsetting pressure on asset quality, and prompting bank deposit growth to recover.

The one caveat – the introduction of Basel III requirements although they expect bank capital to remain stable despite them as they are likely to be phased in over an extended period and as banks are already «have sufficient headroom» above minimum requirements. 

Quality Assets

Further rate cuts will shrink the sector’s net interest margins but deposits will continue to grow in 2025 as the abovementioned rate cuts hit investment returns, making the latter more attractive.

Easing interest rates will help keep nonperforming loan ratios in check although high exposures to commercial real estate could weigh on banking sector asset quality in the US, Europe, and certain parts of the Asia Pacific region.

Pivot Point

But Moody’s is not turning a blind eye to everything going on in the world either. The one thing that could change their outlook for the worse - or the better - are those selfsame pesky geopolitics and Trump 2.0.

«Strong growth in major economies, an easing of geopolitical conflicts and trade tensions and recovery in CRE markets in key systems could result in an outlook change to positive. An escalation of geopolitical conflicts, a resumption of higher inflation and consequent monetary policy tightening are factors that could lead to a negative outlook,» they stated.

Asia Lags

Everything being said, there is not much good news for Asia in the latest outlook. It is the only region that has no positive drivers to help things along next year (the overview shows five stable key drivers and a negative one related to operating efficiency).

However, North America, Latin America, and Western Europe each have one positive driver, while the Commonwealth of Independent States leads with three, followed by Africa with two, and the Gulf Cooperation Council comes in with a clean slate of stable ones.