September 27, 2009
Credit quality declined sharply for loan commitments of 20 million U.S. dollars or more held by multiple federally supervised institutions, a U.S. government report has said.
According to the 32nd annual review of Shared National Credits (SNC) released on Thursday, the credit risk of these large loan commitments was shared among U.S. bank organizations, foreign bank organizations (FBO), and nonbanks such as securitization pools, hedge funds, insurance companies, and pension funds.
Credit quality deteriorated across all entities, the review said. But nonbanks held 47 percent of classified assets in the SNC portfolio, despite making up only 21.2 percent of the SNC portfolio. U.S. bank organizations held 30.2 percent of the classified assets and made up 40.8 percent of the SNC portfolio.
The 2009 review covered 8,955 credits totaling 2.9 trillion dollars extended to approximately 5,900 borrowers.
The review identified significant deterioration in credit quality of leveraged finance credits, with these loans representing more than 40 percent of the dollar volume of total criticized assets.
About 72 percent of the dollar volume of the 50 largest leveraged finance SNCs were criticized, which represents one-third of all criticized assets.
"While we expected a year-over-year increase in problem assets, given the weak economic environment, declining (commercial real estate) values, and previously weak underwriting, we were surprised by the magnitude of the increase," Scott Valentin, an analyst for FBR Capital Markets, was quoted as saying on Friday.
The SNC program was established in 1977 to provide an efficient and consistent review and classification of SNC, which includes any loan or asset extended to borrowers by a federally supervised institution, its subsidiaries, and affiliates that aggregates to 20 million dollars or more and is shared by three or more unaffiliated supervised institutions.