WHAT BANKING CRISIS? '92 SETS RECORD; PROFITS UP 80%

                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: WEDNESDAY, March 10, 1993                   TAG: 9303100031
SECTION: BUSINESS                    PAGE: B8   EDITION: METRO 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium
WHAT BANKING CRISIS? '92 SETS RECORD; PROFITS UP 80%
Low interest rates on deposits helped the nation's banks earn a record $32.2 billion last year, prompting regulators Tuesday to all but declare an end to the industry's crisis.
"1992 was an extraordinary year - extraordinarily good," said Andrew C. Hove Jr., acting chairman of the Federal Deposit Insurance Corp. "These developments mean it becomes more and more unlikely the public will have to pick up the bill for bank failures."
According to the FDIC, the country's 11,461 commercial banks earned $8.2 billion in the fourth quarter, pushing profits for the full year to $32.2 billion. That's 30 percent above the old record of $24.8 billion, set in 1988. In 1991, banks earned $17.9 billion, meaning 1992's total represents an 80 percent growth.
Virginia banks earned $506 million last year, the FDIC reported, up 340 percent from $115 million in 1991.
The earnings were largely the product of favorable interest rate conditions for banks - a wider gap between the rates they pay to depositors and the rates they earn on loans and other investments.
But banks also had fewer loans go bad. For the first time since 1978, charge-offs - the amount of loans declared a loss - fell. They decreased $7.3 billion from the year before to $25.5 billion.
The number of commercial and savings banks on the agency's problem list declined dramatically during the year, from 1,090 to 863, the lowest number since 1985. Hove said the agency's projection for 120 failures this year would be reduced.
The FDIC had expected banks with $76 billion in assets to fail this year, up from $44 billion last year. That probably will be revised down to between $25 billion and $40 billion.
"The banking cleanup isn't turning out to be the tragedy that some people had expected," Hove said.
In 1991, Congress authorized the FDIC to borrow up to $75 billion from taxpayers. At the time, analysts warned that the FDIC's industry-financed insurance fund was so deep in the red that it would be hard pressed to repay the borrowing.
Hove predicted 1993 would be another good year for banks and private economists agreed, although they said earnings probably wouldn't surpass the 1992 record.
As the economy improves, banks almost certainly will have to pay higher interest rates to attract deposits, cutting into their profit margin, said economist Warren Heller of Veribanc Inc., a rating firm in Wakefield, Mass.
Banks used their earnings last year to build up their capital cushions against losses. The cushion stood at 7.52 percent of assets at the end of 1992, the highest capital ratio in 27 years, compared with 6.75 percent a year earlier.
Business and industrial loans fell 4 percent over the year and consumer loans fell 1.6 percent. At the same time, investments and securities jumped 10.7 percent.
Clinton plans to announce today a package of regulatory changes designed to spur bank lending, particularly to small businesses.
Separately, the FDIC said the country's 414 savings banks earned $1.41 billion in 1992, the first profit since 1988. In 1991, they lost $1.32 billion.
Savings banks are hybrid institutions, a cross between a commercial bank and a savings and loan. Most are in economically depressed New England.

by Archana Subramaniam by CNB