A new report from S&P Global Ratings anticipates further additions to U.S. banks’ credit loss allowances in the coming quarters, after only small increases between fourth-quarter 2024 and first-quarter 2025, according to a new report.
In our baseline forecast, we project the industry’s allowance-to-loans ratio and provisions will rise about 5 basis points and roughly 10%-15% respectively in 2025, reflecting an economic slowdown, but we still assume an industry return on equity of 10.0%-11.0%.
If the U.S. enters a mild to moderate recession amid tariff uncertainty, we think bank allowances and provisions would rise above these levels but the profitability decline should be manageable.
In a more severe recession, some banks’ earnings could be hit harder than others, resulting in potential negative rating actions.
The full report: “Are U.S. Banks Recession Ready?“, details bank performance under four recession scenarios and is available on RatingsDirect.
This report does not constitute a rating action.
The report is available to RatingsDirect subscribers at www.capitaliq.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by sending an e-mail to research_request@spglobal.com. Ratings information can also be found on S&P Global Ratings’ public website by using the Ratings search box at www.spglobal.com/ratings.
