Moody's Investors Service said Wednesday it appears U.S. banks have written off about two-thirds of the bad loans they're likely to face through 2011.
"It is clear to us that bank asset quality issues are past the peak," said Moody's Senior Vice President Craig Emrick. "However, charge-offs and non-performers remain near historic highs."
Although there is a sizable amount of nonperforming loans left to clear, "the remaining losses are beginning to look manageable," Emrick said.
Moody's estimates that U.S. banks will write off a total of $744 billion in bad loans between 2008 and 2011. About $476 billion of that has already been recognized, leaving $268 billion to be booked. The agency estimated that 68 percent of residential mortgage losses have been taken, but only 49 percent of commercial real estate losses.
Moody's expects there will be a "slow and uneven" return to normal levels of credit conditions through the next 12 to 18 months.
However, if the global economy worsens this year, credit problems could reappear. Moody's estimated the probability of that happening between 20 percent and 30 percent. Ratings outlooks for most banks remain negative, because they are influenced by the potential for a worse-than-expected economy.
Moody's said loan charge-offs, or those loans considered uncollectable, have decreased overall for three straight quarters, and represented just 3 percent of loans in the second quarter, the lowest level since early 2009.
While still near historic highs, all major loan categories improved during the second quarter except for commercial real estate.
Nonperforming loans, or loans considered seriously past due, were approximately 4.7 percent of loans at June 30, the lowest level in a year.
Banks including Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co., Capital One Financial Corp. and others have reported having to set aside less each month to cover bad loans as more consumers are able to pay their bills on time.
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