FDIC: return to profit fails to boost bank lending

Assistance from the US government has helped the country’s banking industry back into profit, but the improvement hasn’t been reflected in increased lending, says the Federal Deposit Insurance Corporation.

In its latest Quarterly Banking Profile the FDIC reported an aggregate net income for the banks it supervises of $914 million in Q4 2009, down from $2 billion in the third quarter but still a huge rebound from the $37.3 billion loss the industry suffered in the fourth quarter of 2008.

But the report has more bad news than good. Non-current loans and leases, mainly residential mortgages, continued to rise, hitting $391.3 billion – 5.37% of all loans by value, the highest level ever recorded.

And, the FDIC adds, the industry also reduced its coverage ratio – reserves as a fraction of non-current loans and leases – to a 28-year low of 58.1%. In other words, the banks only managed to scrape into the black by deciding not to increase their reserves in line with their problem loan books. Had they done so, it would have meant another $7.4 billion in reserves, resulting in the industry moving well into the red.

The report also painted a picture of an industry whose members are still far from secure: the FDIC’s “problem list” now includes 702 US banks, and 140 banks failed during 2009, the highest number since 1992.