OCC: Improved risk management gives Midwest banks a boost

Strengthening risk management systems helped boost banks' performance in the Midwest, according to the Office of the Comptroller of the Currency. More than 85 percent of OCC-regulated banks in its central district have a 1 or 2 CAMELS rating, the OCC reported in a press briefing conducted via telephone on May 13..The number of problem banks in the district fell to 72 institutions, down from a peak of 146 national banks and thrifts in 2011. In general, banks' focus on risk controls resulted in less examiner criticism and meaningful improvement in examination ratings, officials said..Illinois and Minnesota improved most notably, having the greatest decline in problem banks because of lower non-performing loan levels, reduced charge-offs, improving profitability and strengthened capital, the OCC said in its briefing..Loan growth across the district has been mixed. Construction and a strong ag sector have fueled growth for Wisconsin banks while loan demand in the Chicago area has proven elusive. OCC-supervised institutions in Indianapolis, Minneapolis and central Illinois all experienced higher growth rates..Earnings may be a concern in the near future, with growth flat from 2012 to 2013 after several years of improvement, officials said. Income measures were flat for return on assets and return on equity at 0.62 percent and 6.5 percent, respectively..Net interest margins at about half of the district's banks declined by at least 20 basis points. NIM at Michigan, Minnesota and Missouri banks decreased, although it remains above district averages in those states. Wisconsin had a higher than average NIM, although this is offset by higher overhead expenses..Looking to the future, District Risk Officer John Meade warned against potential operational risks in the central district. "Despite the strides evident in improved governance, we are noting some aspects of operational risk which warrant increased vigilance," Meade said. "This is particularly true in the area of cybersecurity; where, as these risks continue to evolve, we expect institutions to have a robust process to identify and mitigate the threats.".The OCC Central District supervises 491 banks, ranging in asset size from $3.3 million to $11.3 billion. Combined, these banks hold $191 billion in assets. The district encompasses all or parts of Illinois, Indiana, Kentucky, Michigan, Minnesota, Missouri, North Dakota, Ohio and Wisconsin.