Thursday, June 17, 2010

Bank Profits Rise, But So Do Bad Loans

Lately major financial institutions have been boasting higher profits lately to assure consumers they have rebound from the economic crisis. However, a new Federal Deposit Insurance Corp. report is asserting that although banking profits have increased, so have the number of bad loans.

Even though profits increased sharply, troubled assets continued to grow. According to the Workshop's analysis, 411 banks have a "troubled asset ratio" of more than 100, up from 389 banks at the end of December. In other words, they had more problem loans and foreclosed properties on their books than capital and loan loss reserves.

While not an official FDIC statistic, the troubled asset ratio has proven to be a strong indicator of bank stress. Of the 81 banks that have failed so far this year, nearly all had trouble asset ratios above 100, according to their latest FDIC reports.

One especially troubling fact: the FDIC reported that mortgage delinquencies hit an astounding 10.8 percent in the first quarter, up from 6.4 a year ago and just 1.2 percent three years ago. Those numbers may portend more defaults and foreclosures over the next several months.

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