The pace of US bank lending slowed in the first three months of the year - the second consecutive quarter of such easing - but profits across the industry were higher, a leading bank regulator said on Wednesday. A decline in loan demand could signal weakness in the economy but regulators will not know for sure until later in the year, said Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation (FDIC).
"It's probably a little early to draw broader conclusions," Gruenberg told reporters. "We probably need another couple of quarters to see if there is a broader trend here." One industry economist said uncertainty after November's presidential election might have helped dampen loan demand.
James Chessen of the American Bankers Association said industry had expected President Donald Trump might use the tax code to stoke investment but those hopes have faded somewhat. "After the (presidential) election there was a lot of enthusiasm that businesses could expand," said Chessen, the trade group's chief economist. Would-be borrowers are more cautious now and may hold off on borrowing, he said. While loan demand eased, quarterly profits rose 12.7 percent in the first quarter, higher than a year earlier, said the FDIC.
Banks call their failed loans 'charge-offs' and that tally increased 13.4 percent, or $1.4 billion, compared to the year-ago numbers. It was the sixth consecutive quarter that charge-offs posted a year-over-year increase, said the FDIC. Credit card defaults and delinquent auto loans accounted for much of the charge-offs while commercial and industrial loans saw fewer defaults than a year ago. The FDIC insures bank deposits when a lender fails and the agency's Quarterly Banking Profile gives a snapshot of the industry's health.
While the tally of failed loans increased there were signs of health for the banking industry overall. The amount of tardy loans, called 'noncurrent', fell for the 27th time in the last 28 quarters which left the banking sector with more resources to cover the costs of future loan losses, said the FDIC.
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