The US banking industry revenue fell by 46% in Q1 of 2008 compared to the same period last year due to credit crunch, harsh lending conditions and economic slowdown.

According to the Federal Deposit Insurance Corp. (FDIC), the US banks earned $19.3 Billion in Q1 of 2008, a decline of 46% from $35.6 Billion in Q1 of 200, as reported by BizJournal.

As per FDIC, the number of banks at financial risks in the US rose from 53 to 90. US banks insured by FDIC reserved $37.1 Billion as loan-loss provisions for the first quarter of 2008, almost four times above $9.2 Billion in the Q1 of 2007. In the first quarter of 2008, provisions consumed 24% of the banking industry’s total operating revenue in the appraisal period, increased from 6% in Q1 of 2007.

Industry analysts believe that the collapse of US mortgages coupled with the credit crunch had an adverse effect on already weak US financial industry. Moreover, worsening asset quality focused on mortgage loan portfolios in real estate had a negative effect on the profit performance of several US insured banks in Q1 of 2008. The US financial institutions also gave more dollars to cover possible losses resulting from risky subprime loans and the ongoing US credit crisis strained the bottom lines of the US banks.

The weaker US economy and increasing level of problem loans are also adversely affecting the US banking industry. Poor consumers’ reaction owing to soaring fuel prices, fewer available credit, lower earnings and lesser employments are also pushing down the US banking industry. A large number of the brokered deposits, bought from other banks to promote fast lending growth, have also resulted in the banks’ failure in the country.

Besides, the bad credit loan industry would compel the US banks to reduce the rates of interest. But the reverse is applicable for the customers, given that the banks consider loans as assets and they levy borrowers’ interest. Due to tough lending terms in the declining US economy, industry analysts expect the financial industry to remain unstable right through 2008 and into 2009.

A Senior Research Analyst at RNCOS said, “The US banking industry is facing tough time with its weak economy. And consumers are also facing tough time because they can not take loan. Also, the present condition is unlikely to improve soon as lending conditions do not allow consumers to take money, not a good indication for the US banking industry.”

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