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Residential loan losses may return to haunt banks

Banks were back in the news last week, announcing the largest quarterly increase in net income since the recession began. This was mainly due to the first decline in the value of non-current loans since 2006, which allowed banks to reduce their loan-loss provisions. However, a second downward leg in house prices and persistently high unemployment may mean that at some point banks will need to absorb more residential loan losses.

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