Banking profits dropped during the third quarter of 2021 due to a slower reduction in loan loss provisions, the Federal Deposit Insurance Corporation (FDIC) reported on Tuesday (Nov. 30).
According to Reuters, profits dropped 1.2% to $69.5 billion, but were still up almost 36% compared to this time last year, when banks scrambled to set aside funds as a bulwark against COVID-related loan losses.
Banks had been lowering the loan loss provisions for the past three quarters, although the rate of decline slowed in Q3 — $5.2 billion compared to $10.8 billion in the second quarter. As banks reduced those reserves, the rate of non-current loans dropped to 6.3%, while the net charge-off rate for loans not expected to be paid back dropped to their lost level on record, 0.19%, per the report.
Read more: Uptick in Business Bankruptcies Expected
The pandemic set off a wave of government support in the form of tax cuts, deferrals, loans and cash to help businesses stay afloat during lockdowns and restrictions. With that support ending, business insolvencies are projected to rise by 15% next year, following two years in a row of declines. Bankruptcies fell by 12% in 2020 and are expected to decline 6% this year.
Nearly all banks — 96% — reported profitability, with total loan balances up slightly and two-thirds of banks showing yearly profit growth.
Read more: Bank Profits Dropped 36.5% in 2020
“With strong capital and liquidity levels to support lending and protect against potential losses, the banking industry continued to support the country’s needs for financial services while navigating the challenges presented by the pandemic,” FDIC Chairman Jelena McWilliams said in a statement.
Meanwhile, the net interest margin for banks climbed from a historic low in the second quarter to 2.56%, as banks saw a $5.2 billion increase in interest income, slightly up from Q2.
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