BMO Capital Analyst Weighs In On Banking Sector

CHARLOTTE, N.C. (AP) — Banks should begin to show signs of earnings recovery in the coming months as questions about credit quality begin to dissipate, an analyst said Wednesday.

BMO Capital Markets analyst Lana Chan wrote in a research note that when combined with a stabilizing housing market, less tightening of underwriting standards, and a decline in the growth rate of problem assets and early delinquencies, credit costs should moderate in 2010. Banks have been hammered by mounting loan losses as more people fall behind on repaying debt amid the recession and rising unemployment.

The sector, however, has largely been re-capitalized and has rebuilt reserves to record levels, which is a key difference from a year ago, Chan wrote.

Most banks have sharply increased loan-loss provisions to protect against rising defaults during the first half of 2009. Even so, early delinquencies, or loans that are 30 to 89 days past due, declined for regional banks, she wrote

"Delinquencies have typically shown improvement in the second quarter reflecting tax benefits and a better home selling season, while delinquencies in the second half of the year have increased," Chan wrote.