"Hmm, does that mean there will be another bankrupt bank?"
The biggest players in the United States (US) banking industry such as JPMorgan Chase, Bank of America, Wells Fargo and Citigroup are increasingly under pressure after being threatened by a large number of bad loans* that are increasing.
*Loans from banks that do not pay interest for more than 90 days are known as Bad Loans or Non-Paying Assets (NPA).
Reported by Bloomberg analysts, non-performing loans, or loans to debtors who have not made payments for more than 90 days, climbed to $24.4 billion in the last quarter of 2023 for the four banks.
The string of figures represents an increase of $6 billion year-on-year, as bank earnings fell in the last three months of 2023 due to non-performing loans plus a surge in deposit costs stemming from higher interest rates.
Banks are now taking a number of cost-cutting measures to deal with the new business climate where Citigroup is tackling layoffs and spending while Wells Fargo is setting aside $1 billion for a severance package.
Despite the increase in bad loans, the biggest banks in the US have signaled that they expect to reverse the trend by reducing the amount of capital provisions they set aside for non-performing loans in the future.
According to Desmond Lachman, the former Deputy Director at the IMF said the regional bank is also in a precarious position following about 18% of its loan portfolio in troubled commercial industries.
That scenario may cause commercial property owners to start defaulting on their loans by next year and this will be very bad news for small and medium banks.
