NEW YORK -- Long suffering with the industry's biggest batch of problem loans, Citicorp has reached an important turning point in the battle to clean up its balance sheet.
For the first time in almost four years, the nation's biggest bank company is restoring bad commercial loans to health faster than it is seeing good loans turn sour.
Experts regard that trend, revealed by a company official after the release this week of third-quarter financial results as a conclusive sign that Citicorp's mammoth loan woes are now firmly under control.
"That is a key indication that credit quality will continue to improve dramatically," said Ronald I. Mandle, an analyst at Sanford C. Bernstein in New York.
And as credit quality improves, the bank will be able to take smaller provisions for loan losses, removing a big drag on earnings.
Shares of Citicorp were trading at $37.25 late Wednesday, up $1.50.
In the third quarter, Citicorp added $379 million of commercial real estate and corporate loans to cash-basis, or nonperforming, status, according to executive vice president Thomas E. Jones.
Mr. Jones told analysts late Tuesday afternoon, however, that $734 million of cash-basis loans had been restored to health in the quarter, meaning they were either put back on accruing status or paid down.
Another $156 million of cash-basis loans were written off in the quarter.
Much of the newly cured assets were commercial real estate loans. In the quarter, $421 million of these loans were transferred out of Citicorp's cash-basis portfolio, either placed on accruing status or paid down, Mr. Jones said.
Only $250 million of realty loans were added to the cash-basis portfolio.
"That number has been as high as $1.2 billion" in past quarters, Mr. Jones said.
Another $65 million of cash-basis realty loans were written off, Mr. Jones said, while $100 million worth were transferred to Citicorp's portfolio of other real estate owned.
Credit-quality improvements were also evident in Citicorp's $33 billion credit card portfolio. Mr. Jones said the card-loss ratio dipped to 5% in the quarter, from 5.48% in the second quarter and a peak of 6.47% in the first quarter of last year.
In response to increasing competition in the card market, Citicorp has switched from a broad-based, mass-marketing strategy that focused on volume to one more closely targeting better credit risks, Mr. Jones said.
The company's most competitively priced cards, he explained, are offered only to the most creditworthy.
Mr. Mandle said the shift in focus is likely to bring down Citi's card-loss ratio to prerecession levels of 4% to 4.25%.
Citicorp's ratio of nonperforming assets to total assets will not be available until it reports more information on its earnings in a regulatory filing next month.
At the end of the second quarter, that ratio stood at 5.97%.
In an interview this week, Citicorp vice chairman William R. Rhodes expressed confidence that the banking company will continue to report improvements in credit quality.
In the third quarter, a net $976 million drop in commercial nonperforming assets and other real estate owned helped Citicorp report a $528 million profit.
"We've put in place a credit process to make sure that the mistakes and errors that got us here in the 1980s will not be repeated," said Mr. Rhodes.
Citicorp's top management is now integrally involved in setting and monitoring the credit process, and line officers are more accountable for their credit decisions, he said.