US FDIC:Banks In Better Position To Lend;4Q Earnings $26.3B

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–DIF Rises To $9.2$ On Assessment Revenue, Fewer Expected Failures

By Yali N’Diaye

WASHINGTON (MNI) – U.S. banks are in a “much better position” to
lend and support the economy, the Federal Deposit Insurance Corp. said
Tuesday, noting that earnings performance is benefitting from healthier
loan portfolios, profitability continues to strengthen, and the “problem
list” is down to its smallest number since the first quarter of 2010.

In its Quarterly Banking Profile, the FDIC is projecting fewer
failures, which is translating into an increase in the Deposit Insurance
Fund balance to $9.2 billion at the end of 2011 from $7.8 billion at the
end of September. Revenue assessment also explained the DIF’s
strengthening position.

Going forward, Acting FDIC Chairman Martin Gruenberg told reporters
during a press conference that he expects the DIF to continue building
up its balance at a “slow but steady” pace.

Overall, he said in an earlier statement, “The industry is now in a
much better position to support the economy through expanded lending,”
noting improvements in balance sheet profiles, capital, asset quality
and liquidity as deposits flows continue to be strong.

Dark points remain, however, starting with overall revenues that
“continue to exhibit weakness,” as net operating revenue fell $3.8
billion year-over-year due to a reduction in noninterest income.

Besides, while banks’ reliance on the reduction of loan loss
provisions to boost revenues seems to diminish, lower provisions “were
responsible for most of the year-over-year improvement in earnings,” the
FDIC said.

Gruenberg later stressed during the press conference that “at some
point there needs to be a shift” from such reliance.

In that regard, the recent pick up in lending is encouraging, he
said, indicating banks should lend more while stressing “slack loan
demand.”

“The recent resumption in loan growth,” Gruenberg said, “has helped
to limit the erosion in net operating revenue.”

The FDIC report shows loan balances increased $130.1 billion
year-over-year in the fourth quarter 2011, led by commercial and
industrial loans, residential mortgage loans and credit card balances.
This is the largest real loan growth since the fourth quarter 2007.

Still, banks should do more in order to help the economy get
stronger, Gruenberg said.

“In the current environment of low short-term interest rates and a
relatively flat yield curve, prudent loan growth offers the best hope
for increasing net interest income,” he said. Should economic growth
continue at a moderate pace, he expects the positive trend to continue.

Gruenberg stressed, however, that despite signs of improvement,
“downside risks remain a concern” for the economy.

When asked by Market News International to specify those risks, he
cited the ongoing drag that the housing market represents for the
economy. In fact, while noncurrent loans have been falling, their level
remains high in the real estate sector, which now represents 87% of all
noncurrent loans, an all-time high.

Internationally, Europe is the “most significant” external risk,
Gruenberg continued, and the FDIC is watching both risks “closely.”

Gruenberg also pointed out that while the number of problem banks
declined to 813 from 844, the smallest number since the first quarter of
2010, it remains “high” by historical standards.

In addition, there is still a long way to go “before asset quality
indicators return to more normal levels,” he said.

Still, the banking sector appears to be on the right track, with
FDIC reporting that loan losses fell 40.4% from 4Q10 to $25.4 billion in
the last quarter, their lowest level since 1Q08.

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MGU$$$,MK$$$$,MAUDS$]

2012-02-28T17:10:06+0000

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