A metric we watch closely is a bank’s non-performing assets. These are assets that are late, have ceased paying, or are already in foreclosure. A bank with 3% of non-performing assets (NPA) or less is considered ideal. But it’s not the absolute level that matters as much as the trend. A bank with a high level of NPA’s that is trending downward might be better than a bank with low NPA’s trending upward.
The chart below shows the number of banks with increasing NPA trends. Does this chart concern you at all?
The number of banks with an increasing NPA trend increased from less than 10 most quarters to 117 at the end of 2014. The data isn’t fully in for Q1 2015 yet, but our guess is the chart is going to continue to spike higher.
The question is whether this is a warning sign of cracks in the economy or something more benign?