US bank earn­ings up nearly 13% in Q3

Jamaica Gleaner - - BUSINESS - – AP

UNITED STATES banks’ earn­ings in the July-Septem­ber pe­riod jumped nearly 13 per cent from a year ear­lier as con­tin­ued growth in lend­ing fuelled in­ter­est in­come.

The data is­sued Tues­day by the Fed­eral De­posit In­surance Cor­po­ra­tion showed strength in the bank­ing in­dus­try more than eight years af­ter the fi­nan­cial cri­sis struck. How­ever, the im­pact of low oil prices on en­ergy com­pa­nies led banks to con­tinue to post big­ger losses on com­mer­cial and in­dus­trial loans. Some en­ergy com­pa­nies have strug­gled to re­pay loans, caus­ing dis­tress for banks in oil and gas pro­duc­ing re­gions.

The FDIC re­ported that US banks earned $45.6 bil­lion in the third quar­ter, up from $40.4 bil­lion a year ear­lier.

Al­most 61 per cent of banks re­ported an in­crease in profit from a year ear­lier. Only 4.6 per cent of banks were un­prof­itable, down from 5.2 per cent in the third quar­ter of 2015 and the low­est per­cent­age since the third quar­ter of 1997.

The FDIC said net in­ter­est in­come in­creased by $10 bil­lion, or 9.2 per cent, from a year ear­lier.

As a sign of a healthy bank­ing in­dus­try, the in­ter­est in­come earn­ings were boosted by a $112 bil­lion, or 1.2 per cent, in­crease in lend­ing in the third quar­ter. The largest in­creases came in mort­gage lend­ing and credit cards.

The vol­ume of com­mer­cial and in­dus­trial loans that were writ­ten off in the third quar­ter jumped by $946 mil­lion, or 82.7 per cent.

De­spite the rel­a­tively strong quar­ter, the bank­ing in­dus­try “faces con­tin­ued chal­lenges”, FDIC Chair­man Martin Gru­en­berg said at a news con­fer­ence. He noted the sus­tained pe­riod of low in­ter­est rates in re­cent years which has crimped banks’ profit mar­gins on loans.

Gru­en­berg added that “banks must po­si­tion them­selves for rising in­ter­est rates go­ing for­ward”.

Since the sur­prise elec­tion of Don­ald Trump, long-term in­ter­est rates have climbed, pro­pelled

largely by in­vestors’ be­lief that his plan to cut taxes and spend mas­sively on roads, bridges, air­ports and other in­fra­struc­ture could ig­nite in­fla­tion. When they fore­see rising in­fla­tion, bond in­vestors de­mand higher long-term rates and pay lower prices for bonds.

HIGHER RATES

Banks could earn more in­ter­est on loans. On Wall Street, the an­tic­i­pa­tion of higher rates has helped push up prices of bank stocks — in some cases, to their lofti­est lev­els in years. Also stok­ing the rise are ex­pec­ta­tions that reg­u­la­tions af­fect­ing the bank­ing in­dus­try will be eased in a Trump ad­min­is­tra­tion.

More im­me­di­ately, Fed­eral Re­serve pol­i­cy­mak­ers are ex­pected to raise the cen­tral bank’s bench­mark rate at their De­cem­ber 13-14 meet­ing for the first time in nearly a year. Fed Chair Janet Yellen re­cently told Congress that the case for a rate boost has “con­tin­ued to strengthen”. She also in­di­cated that the elec­tion of Trump hasn’t changed Fed think­ing on the tim­ing of the next rate in­crease.

Gru­en­berg has said that higher in­ter­est rates could be “a dou­bleedged sword” for the bank­ing in­dus­try. While bring­ing in more in­ter­est on loans, it also could in­crease the cost for banks to bor­row to fund the loans they make.

US Fed­eral Re­serve Chair Janet Yellen.

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