Moody’s says the banking system, private credit markets are sound despite worries over bad loans

Despite concerns about bad loans at midsize U.S. banks, a senior analyst at Moody’s Ratings has stated that there is little evidence of a systemic problem. Marc Pinto, the agency’s head of global private credit, addressed these worries in an interview on CNBC’s “Squawk Box,” acknowledging loose lending standards and some leniency in loan conditions.

While there are concerns about the overall credit environment, Pinto emphasized that there is no clear indication of contagion that could spark a broader financial crisis. He pointed out that asset quality numbers have shown minimal deterioration over the past few quarters, indicating a relatively stable credit cycle.

The recent sell-off of bank stocks, triggered by disclosures of bad loans at institutions like Zions, Bancorp, and Western Alliance Bancorp, has raised fears of a potential industry-wide issue. However, Pinto cautioned against drawing hasty conclusions, stating that a single instance does not necessarily indicate a trend.

In terms of high-yield debt default rates, Pinto noted that they have remained low this year, staying below 5% and expected to decrease further to below 3% in 2026. This is a stark contrast to the high double-digit default rates seen during the 2008 financial crisis.

Despite lingering concerns about the labor market and the impact of tariffs on inflation and consumer demand, Pinto expressed confidence in the resilience of the U.S. economy. He highlighted the stronger-than-expected GDP growth and the anticipated decline in interest rates as positive indicators for credit quality.

Market sentiment appeared to rebound on Friday following the previous day’s selloff. The SPDR S&P Regional Banking exchange-traded fund, which tracks mid-market leaders, experienced a 6.2% drop on Thursday but saw a 2% increase in premarket trading on Friday.

Overall, Pinto’s assessment suggests that while there are valid concerns about specific instances of bad loans, the broader credit environment remains relatively stable. By closely monitoring asset quality and economic indicators, the industry can navigate potential challenges and continue to adapt to changing market conditions.