MN Banks Improve in ’11, Still Not At Pre-Crisis Levels

The Federal Reserve Bank of Minneapolis said that banking conditions in Minnesota have improved in the past year and will continue to gain strength in 2012, but the state's banks still have a long way to go to get back to the profitability they saw before the financial crisis.

The Federal Reserve Bank of Minneapolis said Wednesday that Minnesota banks were healthier in 2011 compared to the previous year, but profitability and loan volumes continued to fall short of what was typical before the financial crisis.

Based on year-end data reported by the 367 commercial banks chartered in the state, the Minneapolis Fed said that profitability improved slightly; the median return on average assets was at 0.77 percent, up 0.13 percent from the previous year.

The volume of loans made continued to decline, but not as much as it did last year. The median year-end loan volume was down by 2.69 percent from a year earlier; that figure was 2.83 percent at the end of 2010. Meanwhile, banks overall reduced the volume of bad loans on their books, the Fed reported.

“Minnesota banks got stronger, overall, in 2011,” Ron Feldman, senior vice president of supervision, regulation and credit at the Federal Reserve Bank of Minneapolis, said in a statement.

The Minneapolis Fed oversees banks in the Ninth Federal Reserve District, which includes Minnesota, North Dakota, South Dakota, Montana, and portions of northern Wisconsin and Michigan.

The report released Wednesday focused on banks chartered in Minnesota and excluded some of the largest banks operating in the state, including Wells Fargo, U.S. Bank, and TCF Bank, because they are chartered in other states, according to a Pioneer Press report.

Feldman added that Minnesota banks can expect to see further improvements in 2012. Asset quality, which represents payment on loans, “may start to approach pre-crisis levels, while loan growth may not,” Feldman said.

According to a Minnesota Public Radio (MPR) report, federal regulators are giving extra scrutiny to about a third of the state's community banks because of the number of bad loans they have. In better economic times, only about 5 percent of the institutions are typically watched closely. Meanwhile, banks are reportedly battling each other on rates to make loans to financially strong borrowers.

“What we hear is there are some borrowers who are having a hard time getting any credit,” Feldman told MPR. “But if you're considered qualified, competition on terms and conditions is very intense. If banks consider you to be a qualified borrower, you're going to have a lot of people trying to get your business.”

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