According to numbers released by the FDIC this week, lenders are seeing “considerable improvement” in loan quality and, as a result, are becoming increasingly confident that there will be fewer defaults[1]. In fact, they are so confident that they have made loss provisions in the sum of $20.7 billion rather than $51.6 billion. The latter number is the sum set aside to cover losses in 2010, and the former the amount for 2011. Also down is the number of loans being charged off by insured banks. During the first quarter of 2011 lenders charged off $33.3 billion – about $20 billion less than the amount charged off during the same period last year.
Despite these improvements, however, residential lending and the housing market are still weak overall thanks to “continued questions about mortgage servicing problems,” said FDIC chairman Sheila Bair. She also warned of long term interest rate risk “when we emerge from this prolonged stretch of unusually low rates.” For the present, though, FDIC-insured banks are doing okay, with a first quarter profit this year of $29 billion (an $11.6 billion improvement)[2]. Bair warns, however, that “there is a limit to how far reductions in loan-loss provisions can boost industry earnings.”
Do you think that the credit and lending markets are actually on the road to recovery, or will rising interest rates tank them the same way artificial stimuli in 2010 improved and then tanked the housing market?
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[1] http://www.dsnews.com/articles/lenders-slash-loan-loss-reserves-as-credit-quality-improves-2011-05-24
[2] http://www.loansafe.org/fdic-insured-institutions-earned-29-billion-in-1st-q-of-2011
