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Risk Analysis Service Metrics Show Accelerated Deterioration in Middle Market Credit Quality


    The Risk Management Association (RMA), in alliance with Automated

    Financial Systems, Inc. (AFS), this week released its commercial credit

    risk benchmarking data updated through first quarter 2008. The first

    quarter results reflect portfolio data for middle market exposure

    provided by 17 top tier participating institutions, estimated to

    represent over one-half of all middle market commercial loans in the U.S.
    The percentage of middle market loans on nonaccrual began to rise in

    early 2007 and now represents 0.83% of total outstanding balances. This

    figure represents a 26% increase over the prior quarter and a 84%

    increase from one year ago. Middle market nonaccrual levels"”as

    well as 30 to 89 day delinquency levels"”are

    now at their highest levels since March 2004.
    From an industry perspective, loans tied to the construction sector

    continue to lead the deterioration with 2.55% of these loans now being

    reported as nonaccruing, up 36% from the prior quarter and nearly four

    times the year-ago level of 0.65%. Other prominent industry sectors

    reporting nonaccrual levels above the overall average were: Arts

    Entertainment and Recreation (1.99%); Retail Trade (1.10%); and

    Manufacturing (1.02%). From a delinquency perspective, the construction

    industry was also the weakest performing sector, with another 1.95% of

    these exposures being reported as past due, compared to the overall

    average of 0.76%. Delinquencies in the Real Estate and Rental and

    Leasing sector are also up 37% from the prior quarter, and now represent

    0.96% of total outstandings in the sector.
    "The data is showing us that once again

    financial institutions are experiencing the cycle of less than stellar

    credits made during the good economic times coming back to haunt the

    portfolio. The loosened underwriting standards applied to credits are

    now proving challenging to the industry." 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 institutional members that include

    banks of all sizes as well as nonbank financial institutions. They are

    represented in the Association by 20,000 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 Automated Financial Systems, Inc.
    Automated Financial Systems, Inc. (AFS) is the global leader in

    providing commercial lending solutions to top-tier financial

    institutions. We work with a majority of 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, we partner with client banks to understand their organization´s

    strategic goals and work proactively to achieve their business and

    technology objectives. We also partner with the Risk Management

    Association (RMA) to power the Risk Analysis Service, banking´s

    industry-standard credit risk benchmark that gauges risk exposure among

    peer banks, while enabling continuous improvement. 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 our website at www.afsvision.com.
    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.