Banking profits declined in the third quarter despite a booming economy, according to data from the Federal Deposit Insurance Corporation (FDIC), the top US banking regulator.
The FDIC said in its quarterly banking industry overview report on Wednesday that the 4,614 banks it supervises are in good financial condition overall, and although third-quarter profit fell 3.4% month-on-month to 68.4 billion US dollars, profits were still at a record high. The agency's watch list of the weakest banks increased by 1 to 44.
“The banking sector continues to show resilience,” FDIC head Martin Gruenberg said in a statement. However, he added that the industry faces significant downside risks that could affect credit quality, profits, and liquidity. Regulators and analysts have warned that commercial real estate loans may deteriorate, and Gruenberg said these concerns are beginning to become a reality.
The banking industry has basically overcome the turbulent situation that led to the collapse of four regional banks in March. The FDIC said asset quality indicators are still good. However, the strong 5.2% economic growth in the third quarter did not translate into a similar increase in bank profits. In particular, the net profit of community banks fell 4.8%.
Gruenberg specifically pointed out that office properties require attention. Overdue loans for non-private commercial real estate surged 36%, reaching the highest level since 2014.