U.S. bank profits dipped 6.5% during the first quarter of this year to $59.7 billion, as bigger firms expanded their loan loss provisions in response to deepened economic and geopolitical uncertainty, according to the Federal Deposit Insurance Corporation (FDIC) report on Tuesday.
Bank profits dropped 22.2% compared to the first quarter of last year, driven by banks with more than $10 billion in assets reserving more funds to cushion against loan losses.
Acting FDIC Chairman Martin Gruenberg said in a statement:
“Inflationary pressures, rising interest rates, and geopolitical uncertainty could hamper bank profitability, weaken credit quality, and reduce loan growth.”
Bank profits had climbed to record highs at the start of last year as the decreased impact of the COVID-19 pandemic led to rebounded economic growth and enabled banks to reduce massive loan loss reserves they had put aside at the beginning of the pandemic.
However, profits have decreased as banks became less aggressive in reducing those reserves, while some bigger lenders are changing course and rebuilding them, further feeding into potential profits.
During the first quarter of last year, the industry reduced loan loss provisions by $14.5 billion, but started expanding them by $5.2 billion in the first quarter of 2022. That reserve increase was mainly driven by larger banks with more than $10 billion in assets, as just 25% of all banks posted increased loan loss provisions, the FDIC said.
Goldman Sachs Group Inc (GS.N), JPMorgan Chase & Co (JPM.N), and Citigroup Inc (C.N) combined, for instance, set aside $3.36 billion in credit loss reserves in the first quarter of 2022, the banks said.
But the industry posted loan balances rose an extra 1% in the first quarter, driven mainly by growth in lending in industrial and commercial loans. On the other hand, non-current loan balances kept on dropping, falling 4.5% in the first quarter to a non-current loan rate of only 0.84%.
