Wednesday, May 29, 2013

ABA Statement on FDIC Bank Earnings Report

ABA's Chief Economist, James Chessen, gives his opinion.

FDIC Banks Earning Report
“Banks performed strongly in the first quarter, with asset quality continuing to improve and earnings remaining strong due to aggressive cost controls. At the same time, topline revenue growth continues to be a struggle as businesses delay borrowing due to concern about rising healthcare costs, tax increases and the pace of our economic recovery. Until the fog of uncertainty dissipates, rapid loan growth is unrealistic.”

Business Loans Increase for 11th Consecutive Quarter, But Challenges Hinder Growth
“While business loans grew for the eleventh consecutive quarter, the pace has slowed. Banks are working aggressively to make loans, but businesses are hesitant to expand amidst the specter of higher taxes, uncertain healthcare costs and new regulations. In addition, companies feel no urgency to borrow as interest rates are expected to stay abnormally low for several years to come.”

Bank Earnings Strong in Challenging Environment
"As a sign of the industry’s broad-based recovery, over 90 percent of banks were profitable in the first quarter. A continued focus on expense control and a dramatic improvement in asset quality has helped earnings remain solid even as businesses delay borrowing. Low interest rates continue to squeeze margins and put significant pressure on traditional banking.”

As Debate Continues, Capital Gains Strength
“Bank capital continues to grow in both quality and quantity, and it remains at near-record levels. While appropriate capital ratios have been the focus of recent policy debates, these conversations often ignore the fact that bank capital increased throughout the financial crisis and is now 26 percent higher than 2008 levels. Regulators have categorized over 97 percent of banks as well-capitalized, which means their capital levels are at least 25 percent higher than minimum standards. “Total industry capital is now over $1.6 trillion, ensuring our industry is well equipped to fend off any economic challenges that could arise. Adding reserves banks have set aside for possible loan losses, there is a total buffer protecting the industry of almost $1.8 trillion.”

Asset Quality Improves, Failures Continue to Decline
“Banks’ portfolios have grown stronger as problem loans continue to decline. Our industry continues to put losses behind it, with most problems now firmly in the rearview mirror. Problem loans fell to levels not seen since early 2009. Bank failures are few and far between, with only four failures in the first quarter. Banks, not taxpayers, are solely responsible for all of the FDIC’s expenses, paying about $11.3 billion in premiums over the last year.”

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