Banking Dashboard

The index measures the financial health of the industry in reference to four criteria: liquidity (i.e., total loans / deposits or LtD), solvency (i.e., capital to total assets or E / A), asset quality (i.e., nonperforming loans or NPL / Total Loans) and profitability (i.e., return on assets or ROA). The index fluctuates between [0,1], with values approaching zero (0) indicating financial fragility and values close to one (1) strength.

According to the latest figure, the index continued improving as of the third quarter of 2021. The index increased from 0.47 in the third quarter of 2020 to 0.60 in the third quarter of 2021. Quarter-over-quarter, the index rose 30 basis points from 0.57 in the second quarter of 2021.

• The strengthening in the industry liquidity influenced the positive performance of the index in the third quarter of 2021. The loan-to-deposit ratio improved from 46.0% in the second quarter of 2021 to 45.0% in the third quarter of 2021. Total deposits rose 1.5% or by $1,293 million quarter-over-quarter to $85,855 million during this period, while loans and leases dropped 3.9% or by $291 million. In terms of the industry’s loan portfolio, it is essential to underscore that in terms of main variations, the real estate and commercial segment declined $514 million to $25,700 million in the third quarter, partially offset by an increase of $223 million to $9,817 million in the individual loan portfolio.
• The industry’s profitability remained stable, with a ROA of 1.38% in the third quarter of 2021. Net income increased $318 million quarter-over-quarter to $923 million in the third quarter. Three factors contributed to this performance. One of the contributors was the release of $53.9 million in provisions for loans and lease losses (i.e., $164.1 million in cumulative provisions for the first nine months of the year). On the other hand, the industry exhibited a sequential increase of $605.6 million to $1,825 million in revenues from interest and fees on loans and $107.7 million to $314 million on investment interest income between the second and third quarter of 2021. Finally, non-interest income increased by $195.6 million to $556.7 million in the third quarter of 2021, influenced by key items such as deposit service charges, fiduciary activities, net servicing fees.
• Meanwhile, the industry credit risk profile remained stable with the nonperforming loans to total loans and leases ratio (i.e., NPL) trending lower to previous quarters. The NPL ratio declined from 6.57% in the 3Q20 to 4.83% in the second quarter of 2021 and 4.32% in the 3Q21. FDIC data on nonperforming loans and delinquencies for individual loan portfolio segments do not show a material deterioration in asset quality yet.
• Finally, although the equity capital to total assets declined year-over-year from 9.05% in the third quarter of 2020 to 7.77% in the third quarter of 2021, it remained stable compared to 7.70% in the previous quarter. As for the regulatory risk-based capital ratios, the industry’s average common equity to tier 1 ratio rose sequentially from 15.65% in the second quarter of 2021 to 16.22% in the third quarter of 2021, remaining well above the 6.5% minimum regulatory requirement to be considered well-capitalized.