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"â€as
well as 30 to 89 day delinquency levels"â€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.