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Good news for savers in FDIC report

By Claes Bell ·
Thursday, June 2, 2016
Posted: 3 pm ET
Tetra Images - Dan Bannister

Low oil prices have caused some energy companies to be late on their loans. Tetra Images / Dan Bannister

Among the data in the FDIC's Quarterly Banking Profile, which reports on the financial status of member banks, there were a few nuggets that were of interest to savers.

The good news is, banks are lending more. Banks showed the biggest quarterly increase in lending since 2008 in the 1st quarter of this year, increasing their assets by $325.6 billion.

Why would that help savers? One of the biggest factors pushing down deposit rates in recent years (besides the Fed's super-low rates), is that banks just haven't needed your money that badly.

Banks are primarily in the business of taking deposits and using them to make loans, making money on the spread between the rates they charge borrowers and the rates they pay depositors. For the past few years, many of them have been sitting on a massive glut of deposits and making relatively few loans, so they haven't had much incentive to increase interest rates to attract more.

If lending continues to increase drastically, that could finally change.

The bad news is, people can't stop handing banks money. Total deposits went up by $239.5 billion in the 1st quarter, and deposits to foreign offices went up by 3%. Of course, those new deposits aren't going to all banks equally, so while some banks are going to continue to have more deposits than they know what to do with, if loan demand continues to increase, others are going to find themselves running short. And maybe, just maybe, they'll boost interest rates to attract more of them.

Trouble on the horizon on energy loans?

The FDIC report also contained some bad news for bank safety and soundness. About $3.3 billion in loans went noncurrent in the first quarter. That's the biggest increase in total noncurrent loan balances in 6 years, mostly driven by commercial and industrial (C&I) loans, which rose by 65.1%. From the report:

A large part of the weakness in C&I loans is attributable to loans to the energy sector, especially oil and gas producers. Sharply lower energy prices have reduced the ability of many borrowers to service their debts, and a large share of the direct lending exposure of the banking industry to these borrowers is held by larger banks.

Basically, when oil prices were well over $100 a barrel, banks made a lot of loans to businesses for oil exploration and infrastructure. But at less than $50 a barrel, the oil companies that took out those loans are struggling to make their payments.

That could bode ill for the health of banks who made those loans, although most of the late loan are concentrated at bigger banks which, at least in theory, would be better positioned to absorb losses.

What do you think? Will deposit rates will be going up anytime soon?

Follow me on Twitter: @claesbell.

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Steve Vinzinski
June 03, 2016 at 7:33 am

Good to see banks are lending more.On the contrary I hope they are reasonable in their lending practices.Yes people are saving that is good especially if a considerable amount is by seniors.With medical costs going up and up that is good action on the part of seniors.Good article.