US bank profits recover from early 2020 turmoil, but still down from year earlier

Washington

US bank profits were significantly higher in the third quarter than the first half of 2020, although the industry still lagged behind 2019 levels, a regulator reported on Tuesday.

The industry's profits jumped 173 per cent in the third quarter to US$51.2 billion, after firms spent the first half of the year setting aside billions of dollars to offset expected Covid-19 pandemic-driven losses.

But that amount is still 10.7 per cent lower than 2019 levels, and roughly half of banks reported lower profits than a year prior.

"The banking industry remains well-capitalised with ample liquidity and has, to date, weathered the economic effects of the pandemic," said Jelena McWilliams, chairman of the Federal Deposit Insurance Corporation (FDIC) in a statement.

The new data suggests some return to normalcy for banks after a tumultuous first half of the year. Bank profits were down 70 per cent in the first two quarters as firms built up massive cushions to guard against future losses.

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The sizeable increase in profits from the second to the third quarter was due in large part to banks slowing such aggressive preparations.

The FDIC reported provisions for credit losses fell 76.8 per cent from the second quarter.

But there were still some signs of potential trouble, as the share of unprofitable banks rose to 4.7 per cent, and noncurrent loan balances rose 7.9 per cent.

The FDIC also reported that an explosion in bank deposits appears to have slowed.

The uncertainty brought on by the novel coronavirus pandemic drove businesses and individuals to deposit over US$2 trillion in banks in the first half of the year, but total deposit balances rose just US$156 billion in the third quarter.

The influx of deposits actually resulted in the FDIC's deposit insurance fund dropping below its legally required minimum ratio of 1.35 per cent.

That level now stands at 1.3 per cent, and banks could be required to pay more to boost it if it does not rise on its own in coming months. REUTERS