Banks with 20% unpaid loans at 18-year high

The number of US lenders that can’t collect on at least 20 per cent of their loans hit an 18-year high, signaling that more bank failures and losses could slow an economic recovery.

Units of Frontier Financial Corp.,Towne Bancorp and Steel Partners Holdings are among 26 firms with more than one-fifth of their loans 90 days overdue or not accruing interest as of June 30 — a level of distress almost five times the national average — according to Federal Deposit Insurance Corp. (FDIC) data compiled for Bloomberg News by SNL Financial, a bank research firm. Three reported almost half of their loans weren’t being paid.

While regulators may not force firms on the list to close, requiring them to raise capital and curb loans may impede recovery in Florida, Illinois and seven other states. The banks are among the most vulnerable of a larger group of lenders, whose failures the FDIC said, could cost $100 billion by 2013.

“There are some zombie banks out there,” said Bert Ely, chief executive officer at Ely & Co., a bank consulting firm in Alexandria, Virginia. “Neither the banking industry nor the economy benefits from keeping weak banks in business.” Ninety-five banks have failed this year at the fastest pace in almost two decades, depleting the FDIC’s insurance fund. The agency proposed on September 29 that financial firms prepay three years of premiums, which would add $45 billion of reserves. The fund sank to $10.4 billion as of June 30, the lowest since 1993.