Loan loss provisions increase in COVID-19 era

According to the most recent data from the U.S. Federal Reserve Bank’s Eighth District, Arkansas banks had a collective loan-loss ratio of 1.58% in the second quarter this year, a 0.59% increase from the same quarter of 2019.

Banks carry a reserve that is adequate to offset estimated credit losses associated with their loan and lease portfolios. The ratio is the percentage of a bank’s outstanding loans.

With the economic downturn caused by the coronavirus pandemic, U.S. banks have had to prepare for the chances of elevated borrower defaults, resulting for higher allowances for loan losses.

On average, Arkansas banks reserved 1.58% of outstanding loan value to protect against potential losses. That ratio is just ahead of Tennessee banks (1.48%) among the seven states in the Eighth District.

Arkansas is the only state wholly in the Eighth District. The other six states are partially in the Eighth and partially in another.

According to the most current data from the Federal Deposit Insurance Corp., loan-loss ratios in the second quarter this year were 0.84% at Bank of Gravette, 1.37% at Arvest Bank of Fayetteville and 1.38% at The First National Bank of Fort Smith.