* Lending contracts for 10th quarter - FDIC
* Q4 profit $21.7 bln vs year-ago loss
* FDIC's Bair: "We need to see more lending"
* Lending down 0.2 pct to $7.4 trln, led by construction
* Number of problem banks up 24 to 884
(Adds link to Breakingviews column)
By Dave Clarke
WASHINGTON, Feb 23 In the black for 2010, its
first profitable year since 2007, the U.S. banking industry now
needs to start lending again.
At least that's what Sheila Bair, the chairman of the
Federal Deposit Insurance Corp, advocated as her agency
delivered the industry's fourth-quarter report card.
"If you want to have long-term sustainable earnings you can
only reduce loan-loss provisions for so long, we need to see
more lending," she said.
Graphic of loan balances: link.reuters.com/kev28r
Reuters Breakingviews: [ID:nN23191130]
On the face of it, the industry looks in good shape. The
FDIC reported that banks had combined earnings of $21.7
billion, marking their fourth profitable quarter in a row.
But statistics showed that lending contracted for the 10th
straight quarter to $7.38 trillion, down 0.2 percent or $13.6
Bair's take: The industry's recovery will not take hold
until banks start making money off new loans, rather than just
release money set aside to cover shaky prior loans.
Indeed, a big help in the fourth quarter was that banks
reserved $31.3 billion less for bad loans compared with the
Bankers argue that lending is all about demand. Until the
economy fully recovers, banks can't turn on the spigot, they
"Business loan demand is still anemic," said Rob Strand,
senior economist with the American Bankers Association.
Bair expressed sympathy for that argument on Wednesday, but
said the banks should still be doing more.
"The old-fashioned lending that they used to do, we need to
see more of that," she said.
TOO GREEDY THEN, TOO FEARFUL NOW
Loan balances declined by $13.6 billion in the fourth
quarter compared a $6.6 billion drop in the previous quarter.
Construction and development dropped 9 percent or $32.5
billion, the biggest drag. Lending is increasing slightly
elsewhere, with lending for residential mortgages ticking up by
$17 billion or just less than 1 percent.
"The banks that are willing to step up and take on a little
more risk right now may fair better in the long term," said
Chip Hendon, a senior portfolio manager at Huntington Asset
Management in Cincinnati. "Things are always cyclical -- people
always get too greedy on one side and too fearful on the other.
The risks to the market were very real, but overdone in the
Credit card loans increased by $18.1 billion, or 2.6
percent, helped by holiday shopping albeit at a slower pace
than in 2009 when card lending jumped by 7.4 percent.
Bair said the outlook for the industry overall is improving
even for smaller banks who have been burdened by soured
commercial real estate loans.
In another good sign, the amount of bad loans on banks'
books, those 90 days or more past due, declined for the third
Nevertheless, the number of banks on the FDIC's problem
list rose slightly to 884 in the fourth quarter, an increase of
24 from the previous quarter. A year ago, the FDIC added 150
institutions to the list.
So far in 2011, 22 banks with $9.3 billion in assets have
failed. For all of 2010, 157 banks with total assets of $92
billion failed after 140 banks failed in 2009 with total assets
of $169.7 billion.
Only a small percentage of the banks on the problem list
end up failing. The FDIC does not disclose the names of these
institutions that are flagged for low capital levels, poorly
performing assets or other troubles.
(Reporting by Dave Clarke in Washington and Clare Baldwin in
New York; Editing by Jack Reerink and Tim Dobbyn)