Fitch: Ultralow Interest Rates Will Outlast Pandemic

The coronavirus pandemic ushered in a low interest rate environment around the world that helped keep economies at least partially afloat.

According to Fitch Ratings, longstanding ultralow interest rates in major developed markets are likely to persist in a post-pandemic world due to economic weaknesses brought about by the virus. That’s good news for consumers, but bad news for financial institutions globally.

Fitch says this will be moderately credit-negative for banks, nonbank financial institutions (NBFIs) and insurers, but less significant for funds. The ratings agency does note, however, that the possible rating impacts are beyond its typical two-year rating horizon and therefore do not affect current ratings or outlooks.

Due to the ultralow interest rate environment, net interest margins (NIMs) for banks in developed markets may be squeezed long after the pandemic. This will likely affect smaller, less diversified banks, which rely more on interest profits, whereas larger banks rely more on fee-based revenue and may thus be protected from such bottom-line hits.