By Pete Schroeder
WASHINGTON (Reuters) – U.S. banks saw their profits jump nearly 90% in 2021 as firms shrank how much money they were setting aside to protect against credit losses, the Federal Deposit Insurance Corporation said on Tuesday.
Banks reported $279.1 billion in profits in 2021, up $132 billion compared to 2020, the FDIC said. The jump was mainly due to economic growth and banks rapidly shrinking their credit loss provision expenses, which dropped $163.3 billion in 2021, it added.
The rapid reduction in credit losses came after banks moved to build up huge cushions in the early stages of the COVID-19 pandemic. But with feared losses not materializing – the FDIC reported noncurrent loan balances were down 3% in the fourth quarter – banks moved to shrink those reserves in 2021 and deploy the funds elsewhere.
The FDIC reported that banks reduced their credit loss provisions across all four quarters of 2021. However, the pace of that change was slowing in the fourth quarter as banks had largely dispensed with their pandemic-boosted cushions.
In the fourth quarter of 2021, banks reported $63.9 billion in profits, up 7.4% from the same quarter in 2020, the FDIC said. However, profits were down slightly from the third quarter, falling 8.1% as banks slowed down their aggressive reductions in loss provisions.
A majority of banks reported an annual increase in profits, the FDIC said. Net interest and noninterest income were both up from the third quarter to the fourth.
“With strong capital and liquidity levels to support lending and protect against potential losses, the banking industry continued to meet the country’s credit needs while navigating the economic effects of the pandemic,” said FDIC Acting Chairman Martin Gruenberg in a statement. “Still, challenges remain, as rising interest rates and geopolitical uncertainty could negatively affect bank profitability, credit quality and loan growth going forward.”
The FDIC reported that bank assets and total loan balances both increased in the fourth quarter, with loan growth coming across a range of sectors. No banks failed in the fourth quarter, the FDIC said.
(Reporting by Pete Schroeder; Editing by Will Dunham)
