Moody’s has given global banks a stable outlook for next year, expecting creditworthiness to remain strong across the sector.

The credit ratings agency expects steady but subdued global economic growth to provide a broadly stable operating environment.

However a change in geopolitical tensions or conflicts could change the prediction for better or worse.

Moody’s is also predicting lower policy rates to underpin benign asset quality conditions, despite geopolitical risks, while profitability is likely to remain solid.

“Although lower rates will squeeze some banks’ net interest margins, higher fee and commission income will offset this,” Moody’s said. “Strong sector capitalisation will support credit growth and shareholder distributions, while banks will continue to invest as private credit, artificial intelligence and digital assets reshape the sector.”

Economic growth in many regions will be supported by lower policy rates, the agency said. However, the operating environment will remain susceptible to geopolitical risk, trade tensions and a rapidly changing financial landscape.

The firm added that lower policy rates will support asset quality.

“As central banks in many regions cut rates further, asset quality will remain resilient at this late stage of the business cycle,” Moody’s said. “Loan performance will benefit from lower debt-servicing costs.”

It also said capital ratios have likely reached peak levels, while profitability will be broadly stable.

“Lower rates will squeeze NIMs, especially for banks reliant on deposit funding and floating-rate lending, although some banks have macro hedges,” a spokesman said. “Higher fees and commissions and deposit repricing will also be an offset.”