Posted on April - 17 - 2011
Growth in Nebraska Banking Attributed to Residential Properties
With a relatively strong residential properties market, Nebraska was able to maintain health across most of the sectors that are tied up with housing during 2010. Reports revealed that the profits of banks in the state last year were four times the level of profits posted by national banks of similar size.
Analysts have attributed the strong performance of the region’s banking industry to the thriving farm sector, stability in the state’s employment market and the strong real estate market. Omaha foreclosure listings and distressed property listings in other areas of Nebraska did not rise to the same level seen in other regions that were hit hard by the housing industry crisis and this, analysts have revealed, benefitted banks which mostly have tie-ups with the real property industry.
With Nebraska foreclosure listings remaining relatively manageable last year, profits of local banks strengthened. According to analysts, a healthy profit for banks means reaching at least 1% of assets. Last year, the average net income of Nebraska banking institutions was 1.21% of their assets. In comparison, banks nationwide with assets lower than $10 billion averaged 0.22% in 2010. Experts have attributed most of regional banks’ strong financial performance to the sharp increase in farm land prices during the past few years.
They also reported that the 2009 period was when Nebraska banks felt the impact of the recession. During that year, banks’ earnings reportedly dipped slightly below 1%. The figure though, was still better than the average loss of -0.27% experienced by most banks in the U.S. Analysts reported that the weakness in banking earnings during 2009 was mainly caused by mortgage defaults among owners of residential properties and commercial real properties.
They further explained that banks in the state were able to insulate themselves from the worst of the foreclosure crisis because they have fewer commercial and residential real estate loans, with such loans accounting for only 43% of Nebraska banks’ lending portfolio. In comparison, the average percentage of real estate loans for other banks nationally was 70%. When listings of foreclosed homes for sale started rising all over the country, defaults in real estate loans also rose, cutting down the profits of banks nationally.
The markets for commercial and residential properties in Nebraska have done much better than the rest of the U.S. which greatly helped the banking industry of the region, analysts stated. They also claimed that the fact that local banks do not rely heavily on real estate lending benefitted them when the foreclosure crisis hit.
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