MORE THAN 150 publicly traded US lenders own non-performing loans that equal 5 per cent or more of their holdings, a level that former regulators say can wipe out a bank’s equity and threaten its survival.

The number of banks exceeding the threshold more than doubled in the year through June, according to data compiled by Bloomberg, as real estate and credit-card defaults surged.

Almost 300 reported 3 per cent or more of their loans were non-performing, a term for commercial and consumer debt that has stopped collecting interest or will no longer be paid in full.

The biggest banks with non-performing loans all said in second- quarter filings they’re “well-capitalised” by regulatory standards, which means they’re considered financially sound.

“At a 3 per cent level, I’d be concerned that there’s some underlying issue, and if they’re at 5 per cent, chances are regulators have them classified as being in unsafe and unsound condition,” said Walter Mix, former commissioner of the California Department of Financial Institutions, and now a managing director of consulting firm LECG in Los Angeles.

He wasn’t commenting on any specific banks.

Missed payments by consumers, builders and small businesses pushed 72 lenders into failure this year, the most since 1992. More collapses may lie ahead as the recession causes increased defaults and swells the confidential US list of “problem banks,” which stood at 305 in the first quarter.

Non-performing loans can eat into a company’s earnings and deplete cash, leaving banks below the minimum capital levels required by regulators. Three lenders with non-accruing ratios of at least 6.2 per cent as of March were closed last week. A further three institutions, each with ratios of at least 6.5 per cent, said in the past month that they expect to be shut.

Ratios above 5 per cent don’t always lead to failures because banks keep capital cushions and set aside reserves to absorb bad loans.

Banks with higher ratios of equity to total assets can better withstand such losses, said Jim Barth, a former chief economist at the Office of Thrift Supervision.

Bloomberg’s list was compiled by screening US banks for non-performing loans of 5 per cent or more, and then ranked by assets. – (Bloomberg)