Banks lent out more money, customers ramped up savings and more borrowers fell behind with loan repayments in the second quarter of this year, according to information released by the Bermuda Monetary Authority.

The revelations came in the BMA's first Quarterly Banking Digest, a new e-publication sent to subscribers every three months, which breaks down in great detail the state of the Island's banking sector.

The numbers appear to show the sector is beginning to heal - with total assets expanding 2.2 percent, risk profile improving and profitability strengthening - after surviving some hefty knocks during the financial crisis.

Loans and advances on the books of Bermuda's banks climbed 5.5 percent in the second quarter to $8.2 billion, having fallen by 1.9 percent in the first quarter, indicating a clear rise in banks' appetite to lend.

That figure also marks an 8.4 percent increase year on year, suggesting that the credit squeeze impacting major economies like the US and the UK is not being replicated in the local economy.

However, the number of non-performing loans - those with repayments delayed by 31 days or more - rose to 3.1 percent of total loans. That is up from two percent a year earlier.

By comparison, in the US, the problem is markedly worse. The Federal Deposit Insurance Company (FDIC) revealed last week that the average percentage of non-current loans - defined as 90 days overdue or not accruing interest - on the books of US banks as of June 30 was 4.35 percent. That was the highest figure in 26 years of FDIC data.

The Digest revealed that Bermuda banks' net charge-off for bad debt provisions rose to $3.4 million in the second quarter, from $3 million in the first three months of the year, and up by $600,000 from a year earlier.

Meanwhile, Bermuda residents are responding to the tough economic conditions by tucking away more dollars in the bank.

Savings deposits rocketed by 13.9 percent to $4.2 billion, from April through June, and time deposits also climbed four percent to $6.5 billion.

Total deposits at June 30 were $18.3 billion, up $300 million for the quarter. Although this reversed the falling trend of the previous three quarters, the figure was down 12.6 percent from June 2008.

The Digest also shows the damage done to the value of the banks' investments during the past year. Investments worth $8.9 billion at June 30, 2008, diminished by 19.2 percent to $7.2 billion over the following 12 months.

But the second quarter saw a $600 million increase in the value of investments, after three straight quarters of declines.

The Island's banks saw their combined risk profile improve during the second quarter, thanks in part to $220 million in new capital raised.

Butterfield Bank raised $200 million in a Government-guaranteed preference share issue and Capital G Bank also received a $20 million capital injection from its parent company earlier this year, after the BMA conducted stress tests to ensure all of the Island's banks had a sufficient capital buffer to survive a severe economic downturn.

The new capital helped to improve the risk asset ratio - a measure of capital adequacy - to 17.7 percent in the second quarter, compared to 16.1 percent in the first three months of the year.

Although interest rates remain low, notes in the Digest found that the steepening in the yield curve - the difference between the rate at which the banks can borrow and the higher rate at which they lend out - improved profitability.

The sector's return on equity for the quarter was 7.1 percent, up 4.1 percent from the first quarter, but well down from the 11.8 percent achieved in the second quarter of last year.

On launching yesterday's first Banking Quarterly Digest, the BMA stated: "The Digest will provide readers with detailed analysis and reporting of key trends and market developments in Bermuda's banking sector, together with clear and concise explanations of the issues influencing those trends.

"The publication will be distributed in electronic format on a quarterly basis, and further supports the Authority's strategic goals with respect to enhancing transparency across all its operations."

Issues of the Bermuda Banking Digest are available via the Authority's e-subscriptions service: enquiries@bma.bm