WASHINGTON (AP) — U.S. banks’ earnings in the final quarter of 2016 rose 7.7 percent from a year earlier, as lending continued to grow and banks set aside less for losses on loans for the first time since late 2015.
The data issued Tuesday by the Federal Deposit Insurance Corp. showed strength in the industry more than eight years after the financial crisis struck. However, banks continued to post bigger losses on loans, especially for credit cards and commercial and industrial loans.
The FDIC reported that U.S. banks earned $43.7 billion in the fourth quarter, up from $40.8 billion a year earlier. Banks’ profit for all of 2016 rose by $7.9 billion, or 4.9 percent, to $171.3 billion.
Almost 60 percent of banks reported an increase in profit from a year earlier. Only 8.1 percent of banks were unprofitable, down from 9.6 percent in the fourth quarter of 2015.
FDIC Chairman Martin Gruenberg said some banks have been getting around low interest rates that crimp their profits by making more risky loans with higher rates and extending the terms of loans. FDIC examiners will continue to keep a close eye on the situation, he said.
As a sign of a healthy banking industry, overall lending increased by 0.8 percent. Credit card loans showed the biggest growth, 5 percent, while lending for real estate construction rose 3.3 percent. Banks’ net interest income on loans increased by $8.4 billion, or 7.6 percent.
For all of 2016, banks’ loan balances grew by $466 billion, or 5.3 percent, compared with 6.8 percent in 2015 and 5.3 percent in 2014. Growth in lending by community banks, 8.3 percent, was stronger than for the banking industry overall. Community banks account for 43 percent of the industry’s loans to small businesses.
President Donald Trump earlier this month launched his long-promised attack on banking restrictions that came into law after the financial crisis, ordering his Treasury secretary to review the 2010 Dodd-Frank oversight law. Trump and Republican lawmakers assert that the rules under Dodd-Frank have stifled lending, especially hurting community banks and their small business borrowers.
On the negative side, the volume of credit card loans that were written off in the fourth quarter rose by $1.4 billion, or 24.8 percent. Commercial and industrial loans written off jumped by $666 million, or 37.9 percent.
Still, the rates of loan write-offs were near historic lows in 2016, noted James Chessen, chief economist of the American Bankers Association. He said banks are ready for additional interest-rate increases that the Federal Reserve is expected to make this year, and they’ve factored them into their financial plans.
The number of banks on the FDIC’s confidential “problem list” fell to 123 in the latest period from 132 in the third quarter. The 123 banks requiring special monitoring by the agency’s examiners is down sharply from the peak of 888 problem banks in the first quarter of 2011.
The number of bank failures continues to slow. So far this year, two banks have failed. Five were shuttered in all of last year. Failures declined from 24 in 2013 to 18 in 2014 and only eight in 2015. They are down sharply from 157 in 2010 — the most in one year since the height of the savings and loan crisis in 1992. Normally in a strong economy, an average of four or five banks closes annually.
The decline in bank failures has allowed the deposit insurance fund to strengthen. The fund, which turned from deficit to positive in the second quarter of 2011, had an $83.2 billion balance at the end of December, according to the FDIC. That was up from $80.7 billion at the end of September.
The FDIC was created during the Great Depression to insure bank deposits. It monitors and examines the financial condition of U.S. banks. The agency guarantees deposits up to $250,000 per account.
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