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Investing.com -- Fitch Ratings has upgraded Keycorp (NYSE:KEY) and KeyBank National Association’s long-term issuer default ratings to ’A-’ from ’BBB+’ and their short-term ratings to ’F1’ from ’F2’, with a stable outlook.
The upgrade reflects strategic and structural improvements in Keycorp’s operations. Fitch views the bank’s 2024 financial performance as a cyclical low, with its capital raise and securities repositioning that year creating structurally stronger long-term earnings, as demonstrated in year-to-date results.
Despite a moderately declining balance sheet, Keycorp remains the 27th largest U.S. bank with $185.5 billion in assets as of the second quarter of 2025. The bank maintains a leading middle market platform, strong noninterest income contribution to revenues at 38%, and a leading commercial mortgage servicing franchise. Second-quarter pretax earnings rose 58% year over year.
Keycorp’s risk profile benefits from conservative underwriting and carefully managed concentrations. Since 2023, investments in specialized personnel, cash flow modeling, and robust governance have strengthened its interest rate risk management.
The bank’s asset quality remains consistently strong, with an impaired loan ratio of 0.7% in the second quarter of 2025, comparing favorably to peers. Keycorp’s credit quality benefits from low exposure to higher risk segments, with office commercial real estate representing less than 1% of loans and unsecured consumer loans at 5%.
Profitability has rebounded, with active balance sheet remixing, lower deposit pricing, and C&I loan growth lifting net interest margin to 2.7% in the second quarter and operating profit to 1.5% of risk-weighted assets. The efficiency ratio improved to 63.6% in the second quarter from 99.4% in 2024.
Keycorp’s capital position improved significantly following Bank of Nova Scotia’s 2024 strategic minority investment, raising its regulatory common equity Tier 1 ratio to 11.7% in the second quarter, up 125 basis points year over year.
Funding and liquidity have also improved materially since 2023, with a low loan-to-deposit ratio of 72.8% and higher deposit share of funding at 89.4%.
According to Fitch, negative rating actions could occur if Keycorp fails to sustain operating profitability above 1.0% of risk-weighted assets, if loans as a share of customer deposits rise above 90% for a sustained period, if the CET1 ratio falls below 10.0%, or if impaired loans increase above 2% of gross loans.
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