The US banking industry experienced notable financial improvements over the first quarter of 2009, but Fitch Ratings’ says those encouraging signs will be difficult to maintain as credit losses are likely to rise. As major banks continue to rack up credit losses, strong market-dependent revenues seen over Q109, such as mortgage origination and fixed income trading, are likely to ease, further dampening the forward progress made in recent months, the agency says. Dubbing Q1 banking activity as a “remarkable turnaround,” Fitch said in a press statement Thursday the financial institutions covered in its quarterly review reported a combined income of $8.9bn, compared to $33.3bn in losses in Q408. A surge in mortgage refinancing activity, spurred by historically low interest rates, was responsible for much of this improvement, but the refinancing frenzy is likely to dissipate by the second half of the year, Fitch says. Fitch expects banks will exhibit continued increases in loan delinquencies, non-performing assets and in many cases, net-charge offs for at least several quarters as the economic outlook remains somewhat ambiguous. And banks will continue to endure material challenges, as they face the potential of further rating downgrades. In May, Fitch placed nine large financial institutions on negative rating watch, after evaluating them under new, more rigorous market circumstances. Write to Kelly Curran.

More: