Financial rating agency Moody's expects "solid profits" for banks in 2023, with rising interest rates and strengthened balance sheets offsetting the global economic slowdown.

"Global banks will be protected from rising non-performing loans in 2023 by rising interest rates and solid reserves, and the outlook for the sector remains stable," said Moody's Investors Service in a report released yesterday and quoted by Lusa.

Quoted in the document, Moody's senior vice president for credit says that despite the "weakened and more volatile macroeconomic environment", banks "will report solid profits in 2023".

"Rising interest rates will allow continued capital generation on already strong capital, while liquidity and funding will remain robust, even as gloomy economic conditions in much of the world cause loan performance to deteriorate. The bank's credit quality will remain stable overall," says Edoardo Calandro.

According to the rating agency, banks in North America, the Middle East, some Western European countries and Asia-Pacific (excluding China) will benefit the most from the higher rates.

Non-performing loans, on the other hand, are likely to be higher in highly dollarized emerging markets, while many banks in energy-producing countries will benefit from higher oil prices.

According to Moody's, loan losses will be contained by the stricter credit access standards adopted over the last 10 years, lower exposure to riskier asset classes and high provisions made by banks.

In turn, "capital ratios will remain broadly stable, with solid profitability allowing banks to generate capital internally, regulatory requirements remaining at high levels and profit retention outpacing the increase in risk-weighted assets and distributions to shareholders".

"Deposits will likely remain well above pre-pandemic levels for at least the next 12 to 18 months and debt redemption requirements have already been largely met in most advanced economies. This, coupled with the strong starting position, means that banks will remain well funded throughout 2023, even as central banks continue to drain liquidity," he adds.

Moody's outlook points to "economic growth slowing around the world in 2023", with "high inflation, geopolitical changes and financial market volatility hurting households and businesses", and "a substantial risk of further shocks in the future".

On the positive side, the agency notes that "unemployment, an important indicator of credit risk for households, will remain below the 20-year average in most G20 countries".