S&P downgrades scores of US banks as rate hikes bite

Banks have been forced to pay out higher interest to keep depositors from fleeing to other high-yielding alternatives

The collapse of Silicon Valley Bank earlier this year set alarm bells ringing. File picture

S&P Global followed Moody's in cutting its credit ratings and outlook on multiple US regional banks, saying higher funding costs and troubles in commercial property will likely test the credit strength of lenders.

A relentless rate-hike campaign by the US Federal Reserve has raised deposit costs at banks, which have been forced to pay out higher interest to keep depositors from fleeing to other high-yielding alternatives.

S&P cut its ratings on Associated Banc-Corp and Valley National Bancorp on funding risks and higher reliance on brokered deposits, while UMB Financial, Comerica Bank, and KeyCorp were downgraded, citing large deposit outflows and prevailing higher interest rates. 

S&P also lowered the outlook of S&T Bank and River City Bank to "negative" from "stable", citing higher commercial property exposure.

The ratings firm's action will make borrowing costlier for the ailing banking sector that is looking to shake off the effects of the crisis from earlier this year, when the collapse of Silicon Valley Bank and Signature Bank sparked a loss of confidence and led to a run on deposits at several regional lenders.

Borrowing costs globally have also surged. S&P's action came weeks after similar downgrades by its peer Moody's, which lowered ratings on 10 US banks and placed six, including Bank of New York Mellon, US Bancorp, State Street, and Truist Financial on review for potential downgrades. 

An analyst at Fitch, the last of the three chief rating firms, told CNBC last week that several US banks, including JPMorgan Chase, could see downgrades if the sector's "operating environment" were to deteriorate further. 

Reuters