Newspaper article THE JOURNAL RECORD

Bank Earnings Signal Further Credit Crunch

Newspaper article THE JOURNAL RECORD

Bank Earnings Signal Further Credit Crunch

Article excerpt

NEW YORK (AP) _ The latest bank earnings reports offer little hope the credit crunch will end soon.

Loan growth at major banks shrank for the three months ended Sept. 30 from a year earlier. Many lenders were preoccupied with building their capital reserves rather than lending money out.

"The loan growth is not there," said Frank Barkocy, senior vice president at Advest Inc., a brokerage firm. "The big borrowers are not stepping up to the plate even though (interest) rates are coming down. That is a reflection of continued weakness in the economy."

The credit crunch is a term coined to describe a sharp decline in lending to creditworthy borrowers. Citicorp, for example, reported its total loans fell by 5 percent in the third quarter from the year earlier.

First Interstate Bancorp of Los Angeles and First Chicago Corp. posted more dramatic declines of 15.4 percent and 14 percent, respectively.

The balance sheets of many banks show they won't be in the mood for expanded lending in the future.

Citicorp is concentrating on rebuilding its depleted capital cushion against sudden loan losses by the end of the year to meet tougher international capital standards. Few analysts expect Citicorp to be an aggresive lender as it restructures and cuts costs.

Many banks continue to show high levels of delinquent loans, a situation that generally makes bankers reluctant to assume new risk until the economy assumes a greater vigor, said Barkocy.

Even strongly capitalized BankAmerica Corp. last quarter reported $3.05 billion in total non-accrual assets and loans, basically loans where interest payments are late and repayment of the principal is in doubt.

Midwestern banks, largely spared the fiscal agony of their East Coast counterparts, are not seeing strong demand at their loan desks, said Steve Puhr, who follows 40 regional banks for Roney & Co. in Detroit.

"The loan growth has been meager to flat out here," said Puhr.

What's causing the credit crunch? No simple answer emerges in interviews with bank executives, regulators and industry analysts.

"I think banks have contributed to the problem to a degree," said Robert Culley, president of Consolidated State Bank in Hill City, Kan. …

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