The US banking sector was a “source of strength” in the first quarter of 2020 as the COVID-19 pandemic took hold and shut down huge swathes of the economy, according to the Federal Deposit Insurance Corporation (FDIC).
Banks and saving institutions maintained their asset quality and grew their loan books in the three months to the end of March, new data from the FDIC showed.
Across the 5,116 institutions covered by the corporation, total income for the quarter amounted to $18.5 billion – 69.6% lower than the same period in 2019. This huge decline was a direct result of the economic shutdown across most of the US that took place in March, and banks ramping up their provisions for expected losses.
Despite the major slowdown in regular activity, FDIC chair Jelena McWilliams said the banking sector “has been a source of strength for the economy in the first quarter despite unexpected shocks”.
“Although bank earnings were negatively affected by increases in loan loss provisions, banks effectively supported individuals and businesses during this downturn through lending and other critical financial services,” McWilliams said.
“Notwithstanding these disruptions, at the end of the first quarter, bank capital and liquidity levels remain strong, asset quality metrics are stable, and the number of ‘problem banks’ remains near historic lows.”
Robert Strand, senior economist at the American Bankers Association (ABA), said: “Banks entered this crisis with robust capital and strong liquidity, and they are working tirelessly to help households and businesses recover financially and reignite the economy…
“With the economic outlook uncertain, banks will continue a disciplined approach to risk management so they can further support their customers and spur the nation’s economic recovery.”
Strand added that banks remained in a strong position to cope with the “evolving outlook” for the US economy, with almost all banks reporting capital ratios above regulatory requirements.
The FDIC’s data showed that community banks – of which there are 4,681 in the corporation’s scope – reported aggregate income of $4.8 billion in the first quarter of the year, down by 20.9% on Q1 2019. Loss provisions tripled to $1.8 billion.
FDIC-insured institutions reported increases in loan balances across most lending markets. In total, balances increased by $442.9 billion on the previous quarter, up by 4.2%. Within this, commercial and industrial loans posted the largest dollar increase, up by $339.4 billion or 15.4%.
The ABA’s Strand said business lending had risen as companies moved to draw down on credit lines to ride out the economic shutdown. Consumer lending slowed, however, which he said was likely down to people taking a more cautious approach to debt.
Total deposits increased by $1.2 billion, almost five times higher than the Q4 2019 increase and the highest quarter-on-quarter figure in more than 10 years.
Strand said this was caused by consumers and businesses safeguarding their money during the period of economic uncertainty.
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