WASHINGTON — U.S. banks’ earnings in the April-June period rose 1.4 percent from a year earlier as growth in lending fueled interest income.
The data issued Tuesday by the Federal Deposit Insurance Corp. showed continued strength in the banking industry eight years after the financial crisis struck. However, the impact of low oil prices on energy companies led banks to continue to post bigger losses on commercial and industrial loans.
The FDIC reported that U.S. banks earned $43.6 billion in the second quarter, up from $43 billion a year earlier. It marks a record profit for the industry.
Around 60 percent of banks reported an increase in profit from a year earlier. Only 4.5 percent of banks were unprofitable, down sharply from 5.8 percent in the second quarter of 2015.
Still, banks are still operating in a “challenging environment,” FDIC Chairman Martin Gruenberg said. Profits from interest on loans and return on assets remained low by historic standards in the second quarter, while losses on loans continued to increase.
Low interest rates have been crimping banks’ profit margins on loans. Falling oil prices have hurt oil and gas producers, and made it harder for them to repay their loans.
Higher interest rates could be on the horizon. Federal Reserve Chair Janet Yellen said last week that the case for the Fed raising interest rates has been bolstered by a solid job market and an improved outlook for the U.S. economy and inflation. The bank’s policymakers are scheduled to meet on Sept. 20-21.
If rates increase, “that will be a double-edged sword for the industry,” Gruenberg noted at a news conference. Banks could earn more interest on loans. At the same time, it could increase the cost for banks to borrow to fund the loans they make.
As a sign of a healthy banking industry, lending overall in the second quarter grew by 2 percent to $181.9 billion, with the largest increases coming in home mortgages, other real estate loans and credit cards.
The volume of commercial and industrial loans that are 90 days or more past due continued to increase, but at a slower rate than in the first quarter — which saw the biggest quarterly increase since the first quarter of 1987.
