Foreclosure Properties Worsen Loan Losses by Small Banks
The viability of many small banks nationwide is increasingly put in doubt as the banks experience decimation of capital due to massive loan losses from commercial foreclosure properties.
In Florida and Atlanta, more than 50 regional and community banks have reported that the level of their non-performing assets have surpassed 10 percent of overall assets as of March 31, based on research by investment banking firm Carson Medlin of North Carolina.
Non-performing assets refer to loans not earning principal or interest payments, such as foreclosure properties. In normal economic times, the level of non-performing assets should be below 1 percent.
Initially, regional and community banks, which have been providing loans to many small businesses and individual investors across the nation, were not affected by the problem of foreclosures that downed the nation’s big banks.
Banking analysts contend that most of the around 8,000 regional and community banking firms nationwide are operating in healthy conditions. But they also have seen many of them struggling from big losses from commercial foreclosure properties and defaulting business loans.
The Federal Deposit Insurance Corp. is set to publish its assessment of banks for the first quarter, including a list of struggling banks.
As of December 2008, there were 252 banking institutions that are struggling. Due to the rising number of foreclosed commercial properties, the troubled bank list is expected to expand with more additions.
As of date, the FDIC has closed 34 banking institutions, including Florida-based BankUnited which was closed and sold to an alliance of private investors last week.
Several analysts also contend that banking regulators have not been rushing in closing problem banks because of factors such as lack of potential buyers, lack of FDIC personnel to administer troubled banks and search for alternative solutions to the problem of commercial foreclosure properties.
An illustrative case is that of Citizens Community Bank which is based in New Jersey. FDIC took over the bank only this month despite the financial problems of the bank arising from commercial foreclosure properties.
Nick Ketcha Jr., managing director of New Jersey financial consulting firm Fin Pro, said Citizens Bank was expecting to be seized by FDIC as early as December last year. The delay shows that there are others in the same situation of Citizens.
To prepare for its battle to help small banks clobbered by commercial foreclosure properties, the FDIC increased its budget for bank receivership to a record $1 billion from just $150 million previously.
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- Find Foreclosed Properties for Sale in Baltimore
