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US banks still struggling in aftermath of subprime crisis

The Banker's survey shows that non-performing loans are continuing to have a detrimental effect on US regional retail banks, with eight US institutions featuring in the top 25 NPL list.
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The investment banks that securitised subprime assets may have recovered, but the US regional retail banks that originated the mortgages are still suffering.

Out of the 25 highest non-performing loan (NPL) ratios, eight are from US banks and they are all in the southern US (especially Georgia and Florida) or Puerto Rico. One of these, Bond Street Holdings, is a distressed investment vehicle created in 2009 to buy failed banks in Florida.

Highest disclosed NPLs

Another country that stands out is Iran, with three banks among the top 25 highest NPLs. Two of them also appear among the 10 lowest Bank of International Settlements (BIS) capital adequacy ratios, together with a third Iranian bank, Saderat. Only one of these four banks, Parsian, is privately owned. The combination of high NPL rates and low capitalisation suggests the state-owned banks in Iran are engaged in directed lending, but would presumably be recapitalised by the country's government if required.  

Also on the list of lowest BIS ratios are four smaller Japanese banks. If these entities are exposed to the economic damage caused by the March 2011 earthquake, they have a smaller capital cushion to absorb losses than the country’s largest banks.

Recognising NPLs is an important step in itself, and banks on this list should be acknowledged for their good level of disclosure. Some of Halyk Bank’s peers in Kazakhstan have not provided NPL data and multilaterals estimate average NPL rates in the country to be at 25%. This means Halyk may be one of the healthier banks – and its NPL rate appears to have stabilised, remaining largely unchanged since last year. 

After its purchase in April 2010, the new owners of Nurbank were forced to restate the balance sheet and declare losses of 164% of Tier 1 capital, but NPL numbers were not disclosed for this survey.

Similarly, many of the foreign-owned banks in Hungary have not disclosed NPLs. While OTP Bank, with an NPL rate of 13.7%, has stayed in profit, most of the foreign-owned subsidiaries recorded a loss in 2010. This suggests their NPL rates may be higher than that of OTP – approaching 20% in the case of one or two that did provide numbers.

Regional average NPL ratios

On a global level, the sharp decline in NPL rates in Latin America, by almost 25%, is particularly striking. Of course, rapid loan growth can lower an NPL rate because troubled loans become a smaller proportion of the portfolio – and this is certainly the case in Latin America, where total assets grew almost 27% in 2010. It remains to be seen whether underwriting standards have been preserved even during such high loan growth.

Lowest BIS total capital ratios

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