Nonperforming Loan Totals Reach 10-Year High at Banks and Thrifts

Nonperforming loans at the nation's 9,414 banks and thrifts reached $68.9 billion in the third quarter of last year, representing a 16.8% increase from one year earlier, according to Weiss Ratings here.

From a historical perspective, Weiss Ratings said this is the highest dollar amount of nonperforming loans in the banking industry since 1992, when the level reached $79.2 billion following the savings and loan crisis.

Driving the increase in nonperforming loans, troubled commercial loans surged 22.7%, according to Weiss. But nonperforming residential mortgage loans also climbed 13.4% to $13.8 billion as of Sept. 30, 2002.

Institutions showing the largest year-over-year increases in bad loans included Citibank (up 60% to $8.4 billion), J.P. Morgan Chase (up 123% to $4.1 billion) and Bank One (up 89% to $2.5 billion).

"The go-go lending days of the late '90s are coming back to haunt many banks," said David Lackey, president of Weiss Ratings. "As nonperforming loans continue their steady rise, it's only a matter of time before higher chargeoff levels take their toll on bank stability."

The beneficial impact of falling interest rates will eventually play out, leaving nothing left to compensate for the industry's poor asset quality and rising loan defaults, he said.

During the first three quarters of 2002, chargeoffs increased to $34.8 billion, compared to $25.4 billion a year earlier. Weiss said the industry appears to be on pace to break the annual chargeoff record of $37.7 billion set in 1991 following the S&L crisis.

However, the rating company noted that strong net interest margin helped boost the banking industry's earnings last year despite the rise in problem loans.

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