US bank profits fall as loan loss provisions rise in response to global uncertainty – FDIC

WASHINGTON, May 24 (Reuters) – U.S. bank profits fell 6.5% in the first quarter of 2022 to $59.7 billion as large corporations increased loan loss provisions in response to economic uncertainty and heightened geopolitics, the Federal Deposit Insurance Corporation reported Tuesday.

Bank profits fell 22.2% from the first quarter of 2021 and were led by banks with more than $10 billion in assets which set aside more funds to protect against losses on loans.

The growth in loan loss provisions marks a reversal from recent history, which has seen banks earn higher profits by reducing large cushions built up during the pandemic. Growing uncertainty has prompted companies to start boosting those reserves again, which climbed $19.7 billion from the first quarter of 2021.

“Inflationary pressures, rising interest rates and geopolitical uncertainty could hamper bank profitability, weaken credit quality and reduce loan growth,” Acting FDIC Chairman Martin Gruenberg said. in a press release.

This reserve growth was also mainly driven by large banks with more than $10 billion in assets, as only 25% of all banks reported higher loan loss provisions.

However, banks said loan balances rose another 1% in the first quarter, mainly due to higher commercial and industrial loans. And non-current loan balances continued to decline, falling 4.5% in the first quarter to a non-current loan rate of just 0.84%.

Reporting by Pete Schroeder, editing by Franklin Paul and Chizu Nomiyama

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