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Fitch: Provision Growth Marks U.S. Banks' Asset Quality Plateau



  Fitch: Provision Growth Marks U.S. Banks' Asset Quality Plateau

Business Wire

CHICAGO -- January 25, 2013

Increases in credit provision expenses by the largest U.S. banks in the fourth
quarter will likely continue through 2013, according to Fitch Ratings. As
sequential improvements in asset quality continue to wane over coming
quarters, we expect higher provisions and diminishing reserve releases to
become common features of banks' financial results.

A number of banks have reported sequential increases in loss provisions for
the fourth quarter, bucking a trend of continuous provision declines since the
peak of the credit crisis. Among commercial banks surveyed in our quarterly
review of bank results, only KeyCorp (KEY), JP Morgan Chase (JPM), SunTrust
(STI), and US Bancorp (USB) reported declines in provision expenses quarter
over quarter. JPM was a clear outlier, with a 63% decline in provisions,
driven by a large decline in net charge-offs (NCOs). Still, JPM's reserve
releases were essentially flat quarter over quarter as NCOs fell.

As the ratio of reserves to loans falls to a level more consistent with
stabilizing credit quality, we expect reserve releases for U.S. commercial
banks to come to an end soon. The average ratio of roughly 2.4% for banks in
our quarterly report is now approaching an expected normalized level in the
range between 1.5% to 2.0%, depending on the risk profile of individual banks.
This suggests that room for additional reserve releases in 2013 is dwindling.

Counter to market expectations, Citigroup's (C) reported a relatively modest
reserve release in 4Q12. The bank noted that the still-fragile nature of the
housing recovery was the main reason for the decline. Although this ran
against market expectations, Fitch viewed the conservative release favorably
amid a still tentative economic recovery. Further, it is consistent with our
overall view that industry asset quality is likely reaching a plateau in 2013,
four years after the worst phase of the credit crisis.

Recent trends in U.S. commercial bank asset quality are discussed in more
detail in Fitch's "U.S. Banking Quarterly Comment: 4Q12," dated Jan. 25, 2013.
In addition to a detailed review of fourth-quarter bank results, the report
offers insights into recent drivers of capital markets activity, mortgage
banking trends and implications of the recent foreclosure settlement reached
with U.S. regulators.

The above article originally appeared as a post on the Fitch Wire credit
market commentary page. The original article can be accessed at
www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

Applicable Criteria and Related Research: U.S. Banking Quarterly Comment: 4Q12

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=699685

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Contact:

Fitch Ratings
Julie Solar
Senior Director
Financial Institutions
+1-312-368-5472
or
Bill Warlick
Senior Director
Fitch Wire
+1-312-368-3141
Fitch, Inc.
70 W. Madison
Chicago, IL 60602
or
Media Relations
Brian Bertsch
+1-212-908-0549
brian.bertsch@fitchratings.com
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