Wednesday, October 31, 2012

Nonperforming loans decline in Mountain Census region

According to second-quarter data on nonperforming loans, available from the Federal Financial Institutions Examination Council (FFIEC), the percentage of commercial and total loans that were nonperforming was down during the second quarter of this year.

In small, medium and large banks, the proportion of loans that were nonperforming fell. Among total loans, however, the proportion was considerable higher than was the case among commercial loans only. Separate stats on residential loans only were not available, so the fact that commercial loans and total loans diverge, suggests that residential loans are experiencing a higher degree of delinquency than commercial loans.

The graph shows that nonperforming loans have been generally declining as a percentage of all loans since 2011. During many quarters of recent years, we can also see that nonperforming loans were more common among total loans than among commercial loans only. In mane cases, nonperformance was almost twice as common among total loans. 

Following significant declines in the nonperformance rate, during the second quarter of this year, nonperformance in big banks was at 2.55 percent for total loans, and it was 1.7 percent for commercial loans only. In medium-sized banks, the nonperformance rate for total loans was 3.49 percent while it was 1.72 percent in commercial loans. 

The year over year nonperfomance rates (%)
Institutions                             2Q 2011    2Q 2012
Medium banks, all loans         6.31          3.49
Medium banks, comm loans   3.37          1.71
Large banks, all loans             4.11          2.55
Medium banks, comm loans   1.94          1.70

(Small banks showed similar declines and divergence between residential and total loans.) 

Since the financial crisis, the anecdotal evidence has consistently pointed toward a situation in which commercial loans foreclose at a much lower rate than residential loans. "Extend and pretend" was said to be much more prevalent among commercial loans than residential loans in order to keep revenue streams going, even if at reduced levels. The state experienced very few foreclosures among apartment building, for example, compared to single-family foreclosures.

As used here:
Small banks = banks with assets up to $300 mil
Medium banks = banks with assets between $300 mil and $1 bil
Large banks = banks with assets of $1 bil to $10 bil