Government-insured banks saw higher levels of profitability in the fourth quarter, suggesting the banking system is in a better lending position, the Federal Deposit Insurance Agency said Tuesday.
Still, regulators say troubled asset levels remain high.
The FDIC, which takes over troubled banks insuring the liabilities and assets, posted an aggregate profit of $26.3 billion in the fourth quarter of 2011, a $4.9 billion increase from its $21.4 billion net income in 4Q of 2010.
During the same period, the FDIC's problem bank list declined from 844 troubled firms to 813.
In 2011, 92 insured institutions failed, down from 157 in 2010.
The government agency, which insures banking deposits and takes over failed banks, said the fourth quarter marked its 10th consecutive quarter of an earnings increase year-over-year.
FDIC Acting Chairman Martin Gruenberg said 2011 was the second full-year of improving year-over-year performances within the nation's banking system.
The American Bankers Association said business lending was strong.
"Banks continue to aggressively seek out business borrowers as companies consider expansion in an improving economic environment. Business lending was particularly strong, rising 13.6% compared to the same period a year ago," the association said. "Commercial and industrial loans have now increased for six consecutive quarters, a milestone that reflects businesses growing optimism."
The share of banks reporting net losses for 4Q fell to 18.9% from 27.1% a year earlier, and the average return on assets, which is a benchmark of profit, increased to 0.76% from 0.64% a year ago.
In addition, fourth-quarter loss provisions fell by 40% to $19.5 billion, less than the $32.7 billion that the firm set aside to cover losses at insured banks a year earlier.
Banks and thrifts charged off, or wrote down, $25.4 billion in bad loans in the fourth quarter, down 40.2% from a year earlier.
Meanwhile, loan portfolio balances grew during the period. FDIC says total loans and leases grew by $130.1 billion, while loans to commercial and industrial borrowers jumped up by $62.8 billion. In addition, residential mortgage loan balances increased by $26 billion, while credit card balances rose by $21.3 billion.
In addition, deposits in domestic offices grew by $249.7 billion.
"The industry is now in a much better position to support the economy through expanded lending. However, levels of troubled assets and 'problem' banks are still high. And while the economy is showing signs of improvement, downside risks remain a concern," Gruenberg concluded.