Commercial Banks Set $52 Billion Profit Record Last Year, FDIC Says

By Anason, Dean | American Banker, March 14, 1997 | Go to article overview

Commercial Banks Set $52 Billion Profit Record Last Year, FDIC Says


Anason, Dean, American Banker


The banking industry earned a record $52.4 billion last year, although losses on consumer loans continued to grow.

The Federal Deposit Insurance Corp. said Thursday that the nation's 9,528 commercial banks earned $13.7 billion in the fourth quarter, up 14.5% from the same period a year ago.

For the year, profits rose 7.5% despite the $650 million banks paid to help rescue the Savings Association Insurance Fund.

Profits were driven by noninterest income from fees and service charges, which increased 13.5% in 1996 to $93.6 billion. Interest income rose to $162.8 billion, but at half the rate of noninterest income.

Despite the record profits, FDIC Chairman Ricki Helfer described as "worrisome" the yearend statistics on consumer loans, particularly credit card loans.

Net loan losses rose to $15.5 billion, a 27% increase from 1995. Credit card loan writeoffs accounted for $9.5 billion of that total.

"We have seen both delinquent and noncurrent consumer loans increase at the same time that chargeoffs have risen dramatically," Ms. Helfer said. "Chargeoff rates are approaching the levels reached in the last recession."

Commercial banks wrote off 2.29% of their consumer loans, compared with 1.73% in 1995. Credit card writeoffs amounted to 4.37% in 1996, up from 3.4% the previous year. Writeoffs reached 4.72% in the fourth quarter.

The doubling of credit card loans in the past four years and rising personal bankruptcy filings only exacerbate concern, Ms. Helfer said.

Ms. Helfer declined to say whether banks should tighten their credit card lending standards more, but she cautioned that banks must be "very careful" in making assumptions about a very unpredictable line of business. …

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