WASHINGTON: US banks’ earnings in the final quarter of 2016 rose 7.7 per cent from a year earlier, as lending continued to grow and banks set aside less for losses on loans for the first time since late 2015. The data issued Tuesday by the Federal Deposit Insurance Corp. (FDIC) showed strength in the industry more than eight years after the financial crisis struck. However, banks continued to post bigger losses on loans, especially for credit cards and commercial and industrial loans. The FDIC reported that US banks earned US$43.7 billion in the fourth quarter, up from US$40.8 billion a year earlier. Almost 60 per cent of banks reported an increase in profit from a year earlier. Only 8.1 per cent of banks were unprofitable, down from 9.6 per cent in the fourth quarter of 2015. A Wells Fargo sign is seen in front of a branch in Pasadena, California, as US banks turned in a sterling fourth quarter to see profits jump during the period. Photo: AFP
FDIC Chairman Martin Gruenberg said some banks have been getting around low interest rates that crimp their profits by making more risky loans with higher rates and extending the terms of loans. FDIC examiners will continue to keep a close eye on the situation, he said. As a sign of a healthy banking industry, overall lending increased by 0.8 per cent. Credit card loans showed the biggest growth, 5 per cent, while lending for real estate construction rose 3.3 per cent. Banks’ net interest income on loans increased by US$8.4 billion, or 7.6 per cent. At the same time, the volume of credit card loans that were written off in the fourth quarter rose by US$1.4 billion, or 24.8 per cent. Commercial and industrial loans written off jumped by US$666 million, or 37.9 per cent. After the election of President Donald Trump in November, long-term interest rates climbed, propelled largely by investors’ belief that his plan to cut taxes and spend massively on roads, bridges, airports and other infrastructure could ignite inflation. When they foresee rising inflation, bond investors demand higher long-term rates and pay lower prices for bonds.