Results have been helped by setting aside less in reserves, but the Fed expects the decline in bad loans to level off.
The Minneapolis Fed said Thursday that the “middling to strong improvement” the state’s community banks showed last year will continue in 2013, but at a slower pace.
It sees slower profit growth in part because banks are running out of room to boost earnings by setting aside less in reserves to cover ailing loans. And it sees tempered loan growth as some borrowers, particularly in the farm sector, have stored up cash and can fund themselves, said Ron Feldman, senior vice president of the Federal Reserve Bank of Minneapolis.
Feldman, who released the Fed’s quarterly summary of banking conditions and forecast Thursday, said it’s not clear that the banking industry will return to the same level of profitability as before the meltdown.
There’s a lot of discussion about whether banks are in a new, less profitable normal, Feldman told reporters. “I think that’s an open question,” he said.
The level of problem bank loans in the state, which spiked during the crisis, has fallen to the 20-year median now, according to the quarterly summary of banking conditions released Thursday.
Feldman said he expects loan growth of 3 to 7 percent this year, closer to historical norms and up from year-over-year loan growth of 1.7 percent in the fourth quarter.
The Fed’s quarterly summary covers about 360 banks chartered in Minnesota. It doesn’t include Wells Fargo Bank, U.S. Bank, TCF Bank or BMO Harris Bank, which are chartered elsewhere.
Jennifer Bjorhus • 612-673-4683