In a sign that the problems surrounding the housing market may be spreading, the number of noncurrent real estate construction and development loans increased 73.2% during the fourth quarter, while credit card loans that were at least 90 days past due climbed 26%. To prepare for problem loans, banks set aside a significant amount of loan loss provisions in 2007. The FDIC said total loan loss provisions were $68.2 billion for the full year, more than double the $29.5 billion the industry set aside in 2006. But while the growth in banks' loan loss reserves posted their largest increase in 20 years during the fourth quarter, the FDIC said it wasn't enough to keep pace with the growth in loans at least 90 days past due. The ratio of reserves to noncurrent loans fell to 93 cents in reserves for every dollar in noncurrent loans, the first time since 1993 that problem loans have have exceeded its reserves. Overall industry indicators were similarly dour. The industry's average return on assets fell to 0.86% for 2007, compared to 1.28% in 2006. The average net interest margin for banks - the difference between the average interest income banks earn on their loans and the average interest expense they pay to fund those assets - declined to 3.29% in 2007, from 3.31% in 2006. The FDIC said the 2007 result was the lowest since 1988 and it marked the sixth consecutive year that the industry's net interest margin has declined. "We haven't turned the corner yet," Bair told reporters. "The rising trend in noncurrent loans indicates that write-offs and loss provisions will likely remain high for the near future."
-By Michael R. Crittenden, Dow Jones Newswires; 202-862-9273; firstname.lastname@example.org