Rising Number of Bad Loans May Stress Bank and Thrift Earnings.(Brief Article)

Non-performing loans on the balance sheet of U.S. banks surged by 26.6% during 2000, according to Weiss Ratings Inc., a bank rating agency.

Weiss Ratings said the increase is dramatic especially in light of the modest 2.9% increase in non- performers reported in 1999 and declines in 1995, 1996 and 1997. For the first time in several years, problem real estate loans rose as well.

At the end of 2000, U.S. banks carried $48.8 billion of non-performing loans, up from $38.6 billion at the end of 1999.

Residential and commercial non-performers increased last year, reversing a trend. For several years, real estate lending problems had been on the decline. Over $18 billion of the total in non-performing loans was mortgage related, secured by residential or commercial real estate, according to bank call report data assembled by Weiss Ratings.

Residential loans accounted for over $11 billion of that total, which helps to explain why banking regulators have been focusing attention on bank holdings of subprime and high loan-to-value loans.

However, while problem real estate loans are up from last year, they remain well below the level of non-performing real estate loans reported by banks in the mid-1990s.

"In the 1990s, many banks became complacent and loosened their underwriting standards on commercial lending," said Martin Weiss, chairman of Weiss Ratings. "Now, even though the economy is not yet officially in a recession, non-performing loans have already begun to surge - a harbinger of more troubles ahead."