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Repossession Houses Contributed to Bank Losses in Georgia

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By : John Cutts    99 or more times read
Repossession houses contributed substantially to the $3.3 billion loss by banks in Georgia in 2009, according to data released recently by the U.S. Federal Deposit Insurance Corporation.

The total loss almost wiped out the estimated $3 billion earned by Georgia banks in 2007. They also earned the same level of profits in 2005 and in 2006.

The problems in the residential and commercial real estate sectors and the impact of the recession made 63 percent of 305 Georgia banks unprofitable in 2009, based on FDIC records. The percentage marked an increase from 49 percent of banks in 2008 and from 15 percent of banks in 2007.

According to Joe Brannen, president of the Georgia Bankers Association, the bank losses are expected because of the huge exposure of Georgia banks to property loans. They made record profits during the real estate boom, inspiring them to become more aggressive in their lending activities. The housing collapse that followed and the record numbers of repossession houses that arose battered Georgia banks and caused the closure of 32 of them in 2009, the highest number among states.

The banks left standing started repairing their loan policies to save themselves. They no longer renewed risky loans and became very strict in approving new loans. Total bank loans in Georgia last year dropped by 11 percent or by $23 billion.

Most of the loan cuts were made on home construction loans and on business and industrial loans. Based on FDIC data, house construction loans fell by 32 percent or by $12 billion while business and industrial loans fell by 20 percent or by $7.5 billion.

Rhajeev Dhawan, economist at the Georgia State University, said that more than two-thirds of banks in Georgia have been complying with regulatory orders to increase their capital and improve their operations.

The level of new loans has sharply declined because banks are making it difficult for loan applicants to borrow and prospective borrowers are not pursuing their plans because of fears about the unemployment situation and the generally weak business conditions.

However, lending in the small business sector shot up year-over-year by 83 percent in the final quarter of 2009. Since 90 percent of the loan amounts are guaranteed by the Small Business Administration, banks are more aggressive in making SBA loans.

The biggest bank loss in Georgia in 2009 was posted by SunTrust, which lost $1.5 billion, followed by Synovus, which lost $907 million. Part of their losses was due to large numbers of repossession houses in their portfolios.

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