Consumer Payment Card News

Fat Cats

The big gap between what banks pay for money and what they charge for loans, including credit cards, has produced some fat and juicy profits. In the first three months of this year, the banking industry’s return on assets, a basic yardstick of earnings performance, rose to 1.33%, the third-highest ever. According to the Federal Deposit Insurance Corporation (FDIC), commercial banks had record earnings of $21.7 billion in the first quarter, surpassing the previous quarterly record by 9.6%. The biggest gains in profitability occurred at large banks, where rising net interest income more than offset higher expenses for loan-loss provisions and lower market-sensitive revenues. Almost two-thirds of all banks reported higher earnings than a year ago. But credit-quality problems continued to grow, particularly in the commercial loan portfolios of large banks, and in banks’ credit-card lending. According to CardData, credit card losses are hovering at record highs. During April, bank credit charge-offs were 6.59%. Meanwhile, credit card delinquencies hit a record 5.64% during April.

There are mounting concerns that increases in unemployment rates, rising interest rates, and the leveling out of growth among credit card issuers may create greater problems for the industry. The FDIC also noted this week that the number of commercial banks on the FDIC’s “problem list” increased from 95 to 102 in the quarter. The last time the list had more than 100 commercial banks was year-end 1995. The assets of the banks on the list inched up by $1 billion to $37 billion. In addition, six commercial banks failed during the quarter.

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