Weaknesses most pronounced in Eastern Midwest and Southern regions
Philadelphia, PA (August 29, 2007) – The Risk Management Association (RMA), in alliance with Automated Financial Systems, Inc. (AFS), this week released its commercial benchmarking data updated through second quarter 2007. The second quarter results reflect actual data for middle market loans provided by 16 top tier participating banks, estimated to represent over one-half of all middle market commercial loans in the U.S.
Non-accrual loans in the middle market rose for the third consecutive quarter and now represent 0.53% of total reported loans. This represents an increase of 4.0% from first quarter 2007 levels and 39.5% year-over-year. From an industry perspective, the Construction sector was particularly weak, with a full 1.03% of loans being reported as non-accruing, up fourfold from 0.24% one year ago. Other industry segments reporting non-accrual levels significantly above the national average were Transportation & Warehousing (0.88%), Manufacturing (0.85%), and certain sub-sectors of Retail Trade (0.71%).
On a regional basis, nonaccrual rates were highest in the Service’s Eastern Midwest region, totaling 1.05% of total loans, followed by the Southern region at 0.69%. At the individual state level, the highest middle market nonaccrual rates were reported in Michigan, Indiana, and Ohio in the Eastern Midwest, and Arkansas, Alabama, and Florida in the South. California reported one of the lowest nonaccrual levels, at only 0.28% of total middle market loans reported.
Table 1: Selected State nonaccrual rates for middle market loans
“The data indicates that the historically low level of nonperforming loans that the industry has been experiencing is behind us. We appear to be at the onset of another business cycle. Who knows when we will hit the bottom, but it is pretty clear that the industry is heading toward more credit issues,” said Kevin Blakely, RMA president and CEO.
The findings come from the RMA/AFS Risk Analysis Service, a credit risk benchmarking service that enables participating banks to compare their respective risk profiles in defined portfolio segments to industry peers and the industry as a whole. The Service allows participants to gain real-time insights into changing credit quality and portfolio concentrations.
Third quarter 2007 reporting will include the Service’s latest enhancement, expanded risk rating metrics. Institutions will be able to segment their portfolios by measures of default probability, projected loss severity, and expected loss, risk parameters mandated by the Basel II rules expected this fall from U.S. regulatory authorities.
For additional information on the Risk Analysis Service, please contact Suzanne Wharton at RMA at +1 (215) 446-4089 or Doug Skinner at AFS at +1 (484) 875-1562.
About RMA
Founded in 1914, The Risk Management Association is a not-for-profit, member-driven professional association whose sole purpose is to advance the use of sound risk principles in the financial services industry. RMA promotes an enterprise-wide approach to risk management that focuses on credit risk, market risk, and operational risk. Headquartered in Philadelphia, Pa., RMA has 3,000 institutional members that include banks of all sizes as well as nonbank financial institutions. They are represented in the Association by 18,500 risk management professionals who are chapter members in financial centers throughout North America, Europe, and Asia/Pacific. Visit RMA on the Web at www.rmahq.org.
About AFS
Automated Financial Systems, Inc. (AFS) is an information technology and software development company providing products and professional services exclusively to the financial services industry. Its mission is to work with forward-looking financial institutions to build the industry-leading global franchise for lending processes based on a straight-through processing model and on-demand technology and services. AFS assists clients by combining the lending applications, execution expertise, and management information to mitigate risk, reduce costs, and increase revenue. The firm is headquartered in Exton, Pa.; its European subsidiary, Automated Financial Systems GmbH, is located in Vienna, Austria. For further information, visit the AFS Web site at www.afsvision.com.
CONTACTS:
Suzanne Wharton, RMA Director
+1 (215) 446-4089
Doug Skinner, AFS Director
+1 (484) 875-1562