While growth in bad loans may have stabilised in the US, current bad loans are each doing far more damage to bank balance sheets than before, due to homeowners falling underwater on their mortgages. Thus even a lower number of bad loans could still end up causing bank losses to grow, and we’ve yet to turn a corner.
Fitch: Delinquency cure rates refer to the percentage of delinquent loans returning to a current payment status each month. Cure rates have declined from an average of 45% during 2000-2006 to the currently level of 6.6%. It is important not only to observe total roll rates, but delinquency cure rates as well, according to Managing Director Roelof Slump.
[It] will be difficult to argue that the market has stabilised or that performance has improved, until there is a concurrent increase in cure rates. This is especially true in the prime sector, which remains performing many times worse than historic averages.
As if forecasting bank losses weren’t hard enough already, here’s more evidence that it’s a fool’s game right now. What can we know? Bank losses have the potential to get even worse than they have been.
(Tip via Glasshammer and The Market Ticker)
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