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ABA Statement on FDIC’s First Quarter Bank Earnings Report PDF Print E-mail
Wednesday, 01 June 2016
​“While the first quarter wasn’t one for the record books, it was a solid one for banks by any historical measure.  Business and commercial real estate loans grew strongly, and will serve as an important driver of growth in the second half of the year.  While most institutions saw an increase in earnings, banks continue to experience the lingering effects of the slowdown in the oil and gas sector and weaker-than-expected economic growth. These challenges have led to greater provisioning against possible losses, which is prudent management to ensure resources are available in a downturn.  Banks’ exposure to the oil and gas industry is small and won’t restrain them from continuing to meet the credit needs of businesses and individuals.” 

By James Chessen, ABA’s chief economist

Lending Continues Strong Growth
“Lending continues to be the bread and butter of America’s hometown banks, and remains strong even as our GDP suggests a more modest expansion of the economy. Historically low interest rates have encouraged more businesses to borrow. Loans to small businesses were almost 6 percent higher than last year, which is well above the post-recession average. These loans support small business growth, which has a ripple effect that helps create new jobs and grow our economy.

“Banks continue to serve as critical economic drivers, supporting local businesses and communities with nearly $9 trillion in lending in the first quarter. Lending to all businesses is up more than 9 percent compared to the same period a year ago – the highest growth since the fourth quarter of 2014. Construction and development loans continued their resurgence, which is a strong sign of support for growth in the real estate market. These loans rose 16 percent year-over-year, the largest increase since 2007.”

Banks Prepared for Higher Interest Rates
“Banks have been preparing for the Fed to raise rates for a long time, and will adjust easily to any changes. A Fed increase reflects confidence in the underlying strength of the economy, and should act to encourage rather than suppress business interest in expanding operations. Borrowing costs will remain extraordinarily low, which will continue to provide opportunities for new business and job growth.”

Capital Levels Increase
“Banks are strong and continue to add capital quarter after quarter. Institutions remain highly capitalized at levels far exceeding the most stringent regulatory standards. Total industry capital now stands at $1.8 trillion, up 4 percent compared to the same period a year ago and 28 percent higher than at the end of the recession.

“Banks continue to set aside funds to cover possible loan losses. Combined with strong capital levels, this ensures the industry is well equipped to handle any economic circumstance that could arise.”
 

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