The credit rating of San Antonio-based Frost Bank is under review, and two other Texas banks have already been downgraded by Moody’s as the rating agency raises the alarm about a potential recession and rising loan defaults.
The Moody’s downgrades comes after three regional banks collapsed during the spring, sparking fears of a financial meltdown in the United States.
Moody’s revealed its review of Frost, which employs 4,600 people in the Alamo City, in a report released Tuesday. The rating agency said it’s analyzing Frost along with five other U.S. banks, including Bank of New York Mellon Corp., North Trust Corp., State Street Corp., Trust Financial Corp. and U.S. Bancorp, according to CBS news.
“What we’re doing here is recognizing some headwinds — we’re not saying that the banking system is broken,” Ana Arsov, managing director of financial institutions at Moody’s, told Reuters.
Arsov also told Reuters the potential changes stem from the likelihood that bank profits will shrink in the coming months if the economy worsens. Such a slump would lead more borrowers to default on their loans. In its report, Moody’s noted that small and mid-size banks with large corporate real estate holdings face greater financial risks.
Moody’s is forecasting a recession in the fourth quarter of 2023 or the first quarter of 2024. In its report, the company also said persistently high interest rates are likely to put a dent in bank revenues.
Despite the rating review, Frost Bank’s Senior Vice President of Corporate Communications Bill Day told the Current Frost Bank remains “one of the best-capitalized banks in the country.”
“As of the second quarter, we had loaned out less than 44% of our deposit base — which is well below industry averages — and had 16% of our deposit base in highly liquid accounts at the Federal Reserve, meaning we have ready access to cash,” Day wrote in an email.
Although Frost has so far avoided a credit downgrade from Moody’s, two other Texas banks weren’t as lucky. Houston-based Prosperity Bancshares and Amarillo National Bancorp were two of the 10 regional banks downgraded this week by the agency, CBS news reports.
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This article appears in Aug 9-22, 2023.
