Non-current loan levels reach 5 year highs
Philadelphia, PA (November 12, 2008) – The Risk Management Association (RMA), in alliance with Automated Financial Systems, Inc. (AFS), today released third quarter of 2008 Risk Analysis Service (RAS) data. The industry’s only comprehensive credit risk benchmark, RAS metrics on commercial credit risk reveal continued deterioration in the middle market and reflect portfolio data for middle market exposure provided by 17 top-tier participating institutions, estimated to represent more than half of all middle market commercial loans in the U.S.
“An erosion of this magnitude in the middle market is not a surprise, and we anticipate it to continue through the fourth quarter,” said Kevin Blakely, RMA president and CEO. “Importantly, we believe that as these conditions persist market wide, institutions need to plan for the continued, downward swing by shoring up risk and capital management best practices to maximize both capital and liquidity.”
The percentage of middle market loans on nonaccrual rose for the seventh consecutive quarter and is now 1.17% of total outstanding balances, representing an 18% increase over the prior quarter and a 113% increase from one year ago. Non-current loans – loans past due 90 days and over plus loans on nonaccrual – represented 1.37% – a high water mark since the inception of the program in September 2003. Middle market loans past due between 30 and 89 days leveled off slightly in the quarter, totaling 0.81% of total outstanding balances, relatively unchanged from the prior quarter.
From an industry perspective, middle market loans with ties to the construction sector continue to lead the deterioration, with 4.3% of these loans now being reported as nonaccruing, up 25% from the prior quarter and 260% year over year. Other prominent industry sectors’ nonaccrual levels were arts, entertainment, and recreation (1.6%); retail trade (1.5%); manufacturing (0.8%); wholesale trade (0.7%); and health care (0.2%).
About RAS
The RMA/AFS Risk Analysis Service serves as global banking’s only comprehensive, industry-standard credit risk benchmark. An industry-led consortium, RAS members perform actionable comparisons of their own data and that of the industry and peer banks for meaningful segments of the portfolio. Consistent with its “global reach, local markets” approach, RAS coverage includes U.S. Commercial and Industrial, U.S. Commercial Real Estate, and European segments. Through multiple offerings, RAS allows participants to gain real-time insights into changing credit quality and portfolio concentrations, answering “How do we compare?” which is especially important in these turbulent times.
RAS members now receive 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, Pennsylvania, 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 over 20,000 risk management professionals who are chapter members in financial centers throughout North America, Europe, and Asia/Pacific.
About Automated Financial Systems, Inc.
Automated Financial Systems, Inc. (AFS) is the global leader in providing commercial lending solutions to top-tier financial institutions. AFS works the world’s 50 largest financial institutions to build lending processes based on a straight-through model and on-demand technology and services. In doing so, AFS partners with client banks to understand their strategic goals and works proactively to achieve their business and technology objectives. AFS is headquartered in Exton, Pennsylvania, a suburb of Philadelphia; its European subsidiary, Automated Financial Systems GmbH, is based in Vienna, Austria. For further information, visit www.afsvision.com.
Contact:
Meg McBride
RMA Public Relations
215-446-4110