SNL: Reserves Continue to Fall Across Banking Industry
According to an SNL analysis of U.S. commercial banks, though beset by a difficult operating environment, the banking industry has benefited from falling loan loss provisions and reserves as it continues to exit the credit crisis.
SNL said aggregate loan loss provisions continued their steady decline during the third quarter after peaking in late 2009 during the heart of the credit crisis. Those decreases have been matched by other improving credit metrics across the industry over the same time period. Loan loss provisions as a percentage of net charge-offs reached their lowest level since the third quarter of 2008 in the last period, falling below 50% in aggregate for U.S. commercial banks.
Net charge-offs as a percentage of average loans reached a recent low during the third quarter: after hovering above 0.7% since the third quarter of 2011, net charge-offs fell below that mark during the period.
Aggregate reserves as a percentage of loans, which peaked in the second quarter of 2010, also fell to their lowest levels since the onset of the credit crisis in 2008. During the third quarter, U.S. commercial banks reported that aggregate reserves fell below 2% of loans.
Those trends were obvious among the industry’s largest players, where SNL’s data shows that 18 of the 20 largest public U.S. bank and thrifts reported linked-quarter declines in their loan loss reserves.
Bank of America president and CEO Brian Moynihan is quoted by SNL as saying at a recent investor conference that even though unemployment remains high, the outlook is good for the industry’s credit quality as a whole. “I think credit is going to be in good shape for banks … if the economy continues to plug along at 2%, 2.5%, and unemployment continues to be steady and heading down.”
Bank of America reported a reduction of about $1.8 billion in its loan loss reserves during the quarter, bringing its total down to $19.43 billion from $21.24 billion at the end of the linked quarter.
The company reported net charge-offs of about $1.69 billion during the quarter, second-highest among those largest banks. Citigroup reported a total of $2.43 billion, well above BofA’s, and the highest total of net charge-offs during the period for that group.
Citi executives noted that the company has seen its loan loss reserve releases come down as its credit has improved. “As credit has stabilized globally, our loan loss reserve releases have slowed, contributing only a modest amount to our earnings over the past four quarters — we are not making our earnings by very big loan loss reserve releases,” Manuel Medina-Mora, the co-president and CEO of global consumer banking for Citi, said during a recent presentation for the company.
To read the full text of the report, click here.