3 Reasons Why the Outlook for Banks Is Better Than You Think
There's no denying that banks have been beaten down pretty hard during this COVID-19 crisis. The average bank stock is down about 37% through the first two quarters of the year and 26% for the one-year period ended June 30. Bank earnings have been hurt by a number of factors, particularly 0% interest rates and large credit-loss provisions to cover the potential for a higher-than-expected rate of defaults, and overall credit risk.
With the ongoing recession and an interest rate environment expected to stay in the 0% range for the foreseeable future, the outlook for banks does not seem great. But there are some positive signs that indicate the forecast may not be as bleak as you might think.
In its first-quarter report on the banking industry, the Federal Deposit Insurance Corp. (FDIC) noted that the industry saw a 70% drop in earnings compared to the previous year's quarter. But community banks fared better, suffering only a 21% drop in earnings. This was primarily due to lower credit-loss provisions for smaller banks, which aren't yet required to meet the new current expected credit loss (CECL) standards.
Source Fool.com
