Daily Management Review

COVID-19 Pandemic Affects The U.S. Bank Profitability Nearly by 70%


Lending patterns saw a massive jumps, while lenders set aside amounts to battle with future loss.

The U.S. bank saw the profits drop by “69.6% to $18.5 billion” in 2020 Q1 in comparison to the previous year. This drop has been due to the economic impact of COVID-19 pandemic, revealed banking regulator’s data. According to the “Federal Deposit Insurance Corporation” lenders were forced to “write off delinquent debt” besides keeping aside “billions of dollars” to ensure against further losses due the “deteriorating economic activity”.
More than fifty percent of banks witnessed a “profit decline” while “7.3%” of lenders faced unprofitability. The government has conducted the first ever industry survey post the pandemic economic shut down which closed down “large parts of the economy”. Likewise, the new report revealed that banks put aside “$38.8 billion” to recover “potential” future losses in loan, whereby marking a “280%” rise from previous year’s figures. Moreover, banks charging off loans as delinquent nearly rose by “15%” while there has been a “87% increase in charge-offs for commercial and industrial loans”.
In comparison to previous quarter, the non-current loans’ figure also rose by “7.3%” whereby marking the “biggest increase since 2010”. However, the Chairman of FDIC, Jelena McWilliams thinks even through the setbacks the banks served the clients and proved to be a “source of strength for the economy”. In her words:
“The FDIC was born out of a crisis, and we now find ourselves in the midst of another unprecedented period”.
Many investors, on the other hand, “cashed out of the stock market”, resulting a deposit spike of “8.5%” to “source of strength for the economy” in comparison to previous quarter. Furthermore, loan balances also saw an increment while “commercial and industrial loans” led the way by “15.4%”. According to Reuters:
“The total number of ‘problem banks’ monitored by the FDIC increased for the first time since 2011, growing from 51 to 54 firms in the first quarter”.