One positive trend that has been apparent in the banking sector in the second quarter is that legacy non-performing loans are finally starting to completely clear off of balance sheets. Here’s what BB&T had to say:
“I would point out though that…we probably have kind of a base floor or normal level of NPAs”
Non-performing loans are typically loans that have defaulted, but have already been written down to net realizable value. They are not a significant source of future losses, but are more a symbol of past mistakes. The fact that NPAs (nonperforming assets) are starting to completely clear is mostly symbolic as well, but it’s a great sign that six years later we can finally put the ghosts of the financial crisis to rest.
BB&T was one of the better performing banks during the crisis, so it has hit a normalized level of NPAs faster than many of its peers, but BB&T’s path is one that the industry will likely follow within a few quarters. The chart below shows industry non performing loans as of the end of Q1. There’s still some wood to chop, but we’re getting much closer.
Even though the two are unrelated, I’d expect for litigation risk at large banks to clear up along the same time line that NPAs have. Crossing our fingers, we’re in the home stretch for a totally normalized banking system.