Are Banks' Words Matching Their Actions on Loan Loss Reserves?
One of the main reasons the banking sector has struggled more than others during the coronavirus pandemic is because investors and analysts have had difficulty understanding the underlying risk in bank portfolios. The odd nature of the coronavirus pandemic, along with lots of government intervention and the uncertainty ahead, have masked the true quality of credit. Loan losses have not materialized like they normally would during a recession, but banks have added to their reserves heavily, projecting that the losses will eventually roll in.
Many bank management teams in the third quarter took actions and made statements that would suggest they were feeling better about their portfolios and the economy, even as the country heads for what many are expecting to be a tough winter. Can banks really be feeling better about credit quality with coronavirus cases surging?
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Source Fool.com
