Construction Industry Nonaccrual Levels up over 300% from year-ago period
Philadelphia, PA (March 5, 2008) – The Risk Management Association (RMA), in alliance with Automated Financial Systems, Inc. (AFS), this week released its commercial credit risk benchmarking data updated through fourth quarter 2007. The fourth quarter results reflect portfolio data for middle market exposure provided by 16 top tier participating institutions, estimated to represent over one-half of all middle market commercial loans in the U.S.
The non-accrual percentage of middle market loans began to rise over one year ago and now represent 0.68% of total loan outstanding balances. This figure represents a 21% increase over the prior quarter and a 79% increase from year-end 2006. From an industry perspective, the construction sector continues to lead the deterioration with 1.99% of these loans now being reported as non-accruing, up 66% and 315% over prior quarter and year-ago periods, respectively. From a delinquency perspective, the construction sector was also the weakest performing industry. Loans past due 30 to 89 days now represent 1.36% of the outstandings for the sector, up 68% from the year ago period and double the national average ratio of 0.64%. These trends also suggest non-accrual levels will continue to rise in upcoming quarters.
“The deterioration found in the Risk Analysis Service portfolio metrics confirms the challenges that financial institutions will face over the upcoming quarters. Institutions that are able to stay abreast of the changing credit quality of the middle market will be able to make better informed decisions” said Kevin Blakely, RMA president and CEO.
These findings come from the RMA/AFS Risk Analysis Service, a global credit risk data collection 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, portfolio concentrations, and answers the critical question of “How do we compare?” in these turbulent times.
Institutions participating in the Service now have access to an expanded set of risk rating metrics. In addition to borrower risk ratings, institutions are now able to segment their portfolios by measures of default probability, loss given default, and expected loss, risk parameters mandated by the international Basel II rules.
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 member firms that include financial institutions 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.