Q1 sees 305 'problem' US banks; most in 15 yrs

The number of "problem" banks in the US shot has up to 305 in the first quarter of this year, the most in 15 years, indicating that the country's financial system continues to experience the tremors of the economic turmoil.

The Federal Deposit Insurance Corporation (FDIC), a government body which insures bank deposits today said the number of problem banks rose to 305 in the first quarter from 252 in the December quarter. The increase is the highest since 1994.

The commercial banks and savings institutions insured by the FDIC recorded a total net income of $7.6 billion in the first three months of 2009, a fall of nearly 61 per cent against the year-ago period

In the first quarter of 2008, the net income from these entities stood at $19.3 billion.

"Higher loan-loss provisions, increased goodwill write-downs, and reduced income from securitization activities all contributed to the year-over-year earnings decline. Three out of five insured institutions reported lower net income in the first quarter and one in five was unprofitable," FDIC said in a statement.

The US authorities have shut down a staggering 36 banks so far this year.

According to the FDIC, insured institutions set aside $60.9 billion in provisions for loan losses in the first quarter, a rise of $23.7 billion over the same period a year ago.

In the first quarter, these institutions wrote down bad loans to the tune of $37.8 billion, almost twice that of $19.6 billion in the year-ago period.

"The first quarter results are telling us that the banking industry still faces tremendous challenges, and that going forward, asset quality remains a major concern.

"Banks are making good efforts to deal with the challenges they're facing, but today's report says that we're not out of the woods yet," FDIC Chairman Sheila C Bair said.

Moreover, the FDIC's Deposit Insurance Fund declined to $13 billion in the first quarter from $17.3 billion in the December quarter.

"Troubled loans continue to accumulate, and the costs associated with impaired assets are weighing heavily on the industry's performance," Bair said.