Defaults hurt banks, building societies

PUBLISHED : Thursday, 23 August, 2007, 12:00am
UPDATED : Thursday, 23 August, 2007, 12:00am

Surging mortgage defaults whacked US banks and building societies in the second quarter. Profits fell 3.4 per cent to US$36.7 billion and reserves to cover loan losses soared 75 per cent from a year ago, data released yesterday showed.

The Federal Deposit Insurance Corp data showed higher expenses for non-current loans along with lower interest from investments, hurt profits at federally insured banks and savings institutions in April-June.

The impact on banks of the housing slump and foreclosure distress was evident in all aspects of the data. In the second quarter, home loans that were 90 days or more past due rose 12.6 per cent year on year, the FDIC report said.

It was the fifth straight quarter of increases in residential non-current loans. Non-current loans for property construction and development soared 39.5 per cent. Banks and building societies set aside US$11.4 billion to cover loan losses, up 75.3 per cent and the highest level since the fourth quarter of 2002.

Associated Press