New York — When a bank makes a loan, it expects to get back its money with interest.
As many banks report their second-quarter earnings this week, it's becoming clear that an increasing number are not getting interest or principal on some of their loans. In bankers' terminology, they are stuck with ''problem loans,'' or ''nonperforming loans.'' The borrower just doesn't have the cash flow to meet payments.
If a bank gets too many nonperforming loans, it can find itself faced with the prospect of shutting its doors. This is what happened with the recent failure of Penn Square Bank in Oklahoma City, which suddenly found loans it made to energy concerns turning sour.
And this year an increasing number of banks have found themselves on the Federal Deposit Insurance Corporation's so-called ''watch list,'' where they are followed closely. The FDIC, an independent government agency, insures depositors' funds up to $100,000. Thus it has an active interest in the financial state of the banking industry.
According to the FDIC, 269 banks are being monitored by the corporation. This compares with 223 banks at the end of last year. And up until then, the number of banks on the list was declining. The present count is still below the 385 banks that made the list in 1976, however. According to an official of the Federal Reserve Board, bankers typically expect more problem loans to crop up after a recession is over, as demand for credit begins to heat up again. This was so in 1976, the official says.
Even though problem loans are increasing, officials at both the Fed and the FDIC agree that the banking system as a whole remains sound. One official at the Federal Reserve Board says that ''in 1974-75 there were all kinds of scare stories of big banks on the problem list. We're not yet at the level of loan losses of '74-75 although I think we probably will still see some more fallout.''
And at the FDIC an official comments, ''I think the banking system is in reasonably good shape, considering how high interest rates are.''
Ed Bogota, an analyst at Dean Witter Reynolds Inc., says he doesn't believe banks will write off as many loans as they did during the 1974-75 downturn. ''Their bad loans may not even be 50 percent as high as the last cycle,'' he comments.
In 1974-75 banks were particularly hard hit by losses in the real estate investment trust area and by the bankruptcy of W. T. Grant, a major retailer. This year, Mr. Bogota notes, banks have experienced loan problems with an assortment of companies, such as Braniff International Corporation; Dreco Energy Services Ltd., an oil drilling company; and Wickes Companies, a retailer. Real estate on the West Coast has been a problem and this year some energy loans have started to sour. Altogether, however, he says, ''there is no industry producing bad credits like there was in 1975-76.''
Still, there are some people voicing concern. The Bank Credit Analyst, a Montreal-based publication with a wide following in the US investment community, noted in its July report that corporate borrowing had hit a peak 35 percent higher than any other cyclical peak. This borrowing, it noted, ''gives cause for major concern, as it is a measure of the serious degree of distress borrowing now under way.''
Furthermore, the publication warned, ''. . . given the overextended nature of debt burdens and illiquidity, a financial panic and/or sustained erosion of corporate profits and equity cannot necessarily be avoided.'' Thus, the Bank Credit Analyst warns its business clients to be extremely cautious.
As problem loans swell in a bank's portfolio, the risk of failure increases. So far this year, the FDIC says 22 commercial and thrift banks have closed their doors.
Naturally, not all the problems were caused by bad loans. In some instances, such as with some of the thrifts, problems have cropped up because institutions have fixed interest rate loans on the books during a time of rising interest costs.
In the case of commercial banks, however, problems most often crop up when customers are unable to make payments on their loans. According to an official at the Fed, once a bank gets more than 6 percent of its outstanding loans on a ''past due'' basis, it attracts regulators' attention. Currently, he says, the types of banks the Fed is monitoring are smaller ones as well as some regional ones.
Major money center banks - because of their ability to diversify their loan portfolio - are in better shape. Citicorp, in its 1981 annual report, says it expects its percentage of loan losses on average loans to be about 0.25 percent.
Once a customer falls behind on paying off a loan and the bank decides to categorize it as a ''nonperforming'' type of loan, it goes to what is called a ''workout'' desk.
Lawrence Glenn, Citicorp senior vice-president and chairman of the bank's credit policy committee, says the bank encourages its line professionals or loan officers to spot problem loans as soon as possible. He estimates that 80 to 90 percent of the bank's problem loans are spotted by the line managers and not controllers constantly auditing the bank's loans. Once the bank determines that a customer is either heading toward bankruptcy or debt restructuring, it brings in what it terms its institutional recovery management team, which is skilled in dealing with bankruptcies and corporate restructuring.
Of the loans that go to the workout desk, he estimates that 55 to 60 percent only require ''a little extra attention.'' Of that group, some 90 percent are eventually taken off the workout desk and put back on the books as performing loans. He says only 40 percent of the loans ''are what you would call serious problems,'' and only 10 percent eventually mean some kind of loss for the bank. In fact, even after the bank has written off a loan, Mr. Glenn says, it still gets back 30 cents on the dollar from the borrower.