Loan-loss provisions by banks in the U.S. consumed almost one-third of operating income in the second quarter, the “highest proportion of income transferred to loss reserves since 1989,” Christopher Wha len from Institutional Risk Analytics told customers in a message last week.
Whalen also noted that, according to the Quarterly Banking Profile published by the Federal Deposit Insurance Corp., charge-off rates are the highest since the fourth quarter of 1991.
The numbers prompted Whalen to predict that bank loan losses won’t peak until the first or second quarter of 2009.
Whalen sees the credit outlook as remaining negative because banks are putting aside “$2 in provisions for future loss for every $1 in current defaults.”
Whalen’s Institutional Risk Analytics builds analytics systems and provides ratings on banks and companies.
