Banks Have Recognized 60% of Expected Loan Charge-Offs: Moody’s

In its latest quarterly report on credit conditions of the U.S. banking system, Moody’s Investors Service says banks’ asset quality issues are “past the peak” but charge -offs and non-performers continue to eat away at profitability and sheer fundamentals.

Based on Moody’s market data, banks’ non-performing loans stood at 5.0 percent of total loan assets at March 31, 2010.

Moody’s says U.S. rated banks have already charged off or written-down $436 billion of loans in 2008, 2009, and the first quarter of 2010. That leaves another $307 billion to reach the rating agency’s full estimate of $744 billion of loan charge-offs from 2008 through 2011.

In aggregate, the banks have recognized 60 percent of Moody’s estimated total charge-offs and 65 percent of estimated residential mortgage losses, but only 45 percent of projected commercial real estate losses.

In the first quarter of this year, the banking industry’s collective annualized net charge-offs came to 3.3 percent of loans, versus 3.6 percent of loans in the fourth quarter of 2009, Moody’s said. Despite two consecutive quarters of improvement in charge-offs, the ratings agency notes that the figures still remain near historic highs, dating back to the Great Depression.