Risk Analysis Service Metrics Show Accelerated Deterioration in Middle Market Credit Quality
| Suzanne Wharton, RMA
Director swharton@rmahq.org +1 (215) 446-4089 |
Scott Gleeson Blue, AFS
Director of Communications sblue@afsvision.com +1 484.875.1411 or +1 215.356.7423 |
Nonaccrual and delinquency levels reach highest levels in 4 years
Philadelphia, PA - May 19, 2008 - 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.
