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Commercial Credit News
|ABA Statement on FDIC's Fourth Quarter Bank Earnings Report|
|Wednesday, 24 February 2016|
“Strong, broad-based loan growth was the driving factor behind another solid year for America’s banking industry. Lending is the big story as banks of all sizes steadily increase their loans to small, medium and large businesses. Net income reached record levels, which reflects a growing economy and careful expense management by banks. Strong profitability, continually improving asset quality and higher capital levels have been key ingredients for a robust industry able to meet the needs of customers and the economy.
By James Chessen, American Bankers Association's chief economist
“While we expect loan growth will remain strong, global concerns and low confidence among businesses mean that risks will be largely weighted on the downside. The banking industry continues to build strength and resilience. Banks are well prepared for any slowdown domestically or globally.”
Lending Grows Nearly Across the Board
“Banks continue to serve as critical economic drivers, supporting local businesses and communities with nearly $9 trillion in lending at the end of last year. Total loans are up more than 6 percent with community banks leading the charge. Strong loan growth – particularly in business lending and commercial real estate – serves as an important catalyst for broader economic growth. Construction and development loans, which stalled for many years following the recession, have come back to life, rising more than 15 percent for the year.
“Consumers also made greater use of credit last year, but the measured pace reflects a disciplined approach to managing debt at reasonable levels. Even with solid loan demand, there is still a sense that businesses are a bit hesitant to expand. We think there are opportunities for businesses, but the potential slowing of the U.S. economy and continued worries about growth internationally work to sideline opportunities for business expansion.”
Capital Levels Hold Strong as Loans Increase
“With solid levels of capital, banks are acutely focused on effectively deploying it through loans that help grow businesses and create jobs. Total industry capital now stands at $1.8 trillion, up 3.5 percent for the year and 25 percent higher than at the end of the recession. Banks remain highly capitalized at levels far exceeding the most stringent regulatory standards. The industry’s strong capital buffer means it’s well equipped to handle any economic circumstance that could arise.”
Strong Underwriting Drives Improvement in Asset Quality
“Asset quality sustained its five-year trend of improvement as cautious behavior on the part of both banks and borrowers continues to pay off. Banks have largely worked through the cycle of assets that were troubled, and the drag from these loans continues to dissipate. The conservative approach to underwriting that has characterized banking over the last five years will protect the industry from another down cycle. As assets grow, the industry is setting aside additional provisions for loan losses that may occur down the road. This is prudent management to assure resources are available in a downturn.”
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