The risk in the portfolio of large syndicated bank loans has declined, according to federal banking agencies.
However, despite the improvement, the dollar volume of loans rated below “pass” remains elevated compared to past economic cycles, according to the Shared National Credit (SNC) Program Review.
The report — released by the Federal Reserve Board (Federal Reserve), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) – also found increased risks associated with leveraged lending. The agencies remind banks to update credit risk management practices.
The 2018 SNC portfolio included 8,571 credit facilities to 5,314 borrowers, totaling $4.4 trillion. That’s up from $4.3 trillion in 2017. U.S. banks held the most SNC commitments at 44.3 percent of the portfolio, followed by foreign banking organizations and other investor entities such as securitization pools, hedge funds, insurance companies, and pension funds.
Starting Jan. 1, 2018, the agencies increased the minimum aggregate loan commitment threshold to be included in the review from $20 million to $100 million. With the revised definition, loan commitments increased modestly compared to 2017, but the number of borrowers and credit facilities declined.
Further, the level of loans rated below “pass,” as a percentage of the total SNC portfolio, decreased year-over-year from 9.7 percent to 6.7 percent. Leveraged lending was the primary contributor to the overall “special mention” and “classified” rates. Investors outside the banking industry held the greatest volume of “special mention” and “classified” commitments, followed by U.S. banks and foreign banking organizations.
The agencies conduct SNC reviews in the first and third calendar quarters and issue a single statement annually that includes combined findings from the previous 12 months. The next report will be published following the third quarter 2019 SNC examination.