By Pete Schroeder

WASHINGTON, (Reuters) – U.S. bank profits fell 6.5% to $59.7billion in the first quarter 2022, while larger banks increased their loan loss provisions to deal with increased economic and geopolitical uncertainties, according to the Federal Deposit Insurance Corporation Tuesday.

Bank profits dropped 22.2% when compared with the first quarter in 2021. The reason was that banks holding more assets than $10 billion set aside extra funds to prevent loan losses.

This is a complete reverse of recent history which has seen banks make higher profits by shrinking large reserves that they had built up in the aftermath of the pandemic. The uncertainty caused firms to increase their reserves. They grew $19.7 million in the first quarter 2021.

Martin Gruenberg, acting Chairman of FDIC, stated that rising interest rates and inflationary pressures could affect bank profitability and weaken credit quality. This would also reduce loan growth.

The growth in reserve was also due to larger banks, with assets exceeding $10 billion. Additionally, only 25% of banks reported greater loan loss provisions.

Banks reported that loan balances increased by 1% during the first quarter. This was due to an increase in lending for industrial and commercial loans. The noncurrent loan balances fell by 4.5%, to 0.844% for a noncurrent rate.