The global outlook for banks has been revised to stable from negative, driven by expectations of economic growth stabilization and monetary easing. This shift is anticipated to support operating environments for banks, alleviate pressure on asset quality, and aid in the recovery of deposit growth. Despite these positive trends, geopolitical conflicts, trade tensions, and post-election policy changes in the United States are expected to create significant uncertainty and risks.

"Stabilizing economic growth and monetary easing will support stable operating environments," a spokesperson stated. It is anticipated that most G-20 economies will transition from cyclical recovery to slower but sustainable growth rates in 2025 amidst monetary easing. However, geopolitical conflicts and post-election policy changes in the US pose risks.

Interest rate cuts coupled with economic growth are expected to bolster asset quality. "Lower rates, coupled with economic growth, will help improve borrowers’ debt repayment capacity in major systems," supporting loan quality while maintaining relatively low nonperforming loan (NPL) ratios. Nevertheless, exposures to commercial real estate (CRE) continue to affect banks' asset quality in the US (Aaa negative), Europe, and some Asia-Pacific systems.

Capital levels are predicted to remain stable despite tougher final Basel III requirements being implemented. "We expect banks to keep their capital ratios stable because large banks can phase in the new Basel III standards over long periods," as they already have sufficient headroom above minimum capital requirements.

However, narrowing margins due to rate cuts are expected to strain bank profitability. "Banks' profitability will weaken in most systems as net interest margins (NIMs) decline after rate cuts." The pressure on NIMs will be more pronounced where competition is intense or where there is heavy reliance on deposits for funding or a large proportion of loans carry floating rates.

Funding and liquidity are projected to remain robust across most systems. Deposit growth is set to recover moderately by 2025 since rate cuts will reduce returns on investment products making deposits more appealing.

Governments' willingness to provide support remains unchanged; however, fiscal capacity weakening may somewhat limit governments' ability to offer support for banks within certain systems.