Report: Credit quality improved for large loans last year

Credit quality associated with large, syndicated bank loans improved last year, according to the 2022 Shared National Credit (SNC) report produced by federal banking regulatorsThe the report found that credit risks for syndicated loans, which are large loans originated by multiple banks, were moderate last year. However, the report noted that the results do not fully reflect increasing interest rates and softening economic conditions that began to impact borrowers in the second half of 2022.

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The report added that while the risks to borrowers impacted by COVID-19 have declined, they remain high for leveraged loans, as well as the entertainment, recreation, and transportation services industries.

The 2022 SNC portfolio included 6,214 borrowers, totaling $5.9 trillion in commitments, which is up 13.9 percent from the previous years. Further, the percentage of loans that deserve management’s close attention decreased from 10.6 percent of total commitments to 7 percent. It added that nearly half of total SNC commitments are leveraged loans. Commitments to borrowers in industries affected by COVID-19 represent about one-fifth of total SNC commitments.

Additionally, for leveraged borrowers that operate in COVID-19-affected industries, non-pass loans decreased to 18.9 percent but remain above the 13.5 percent level in 2019. While U.S. banks hold nearly 45 percent of all SNC commitments, they hold only 21 percent of non-pass loans.

The report was produced by the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency.