Credit Quality of Large Loan Commitments Improves
For the second consecutive year, the credit quality improved for large loans that domestic and foreign banks as well as nonbanks were committed to make in 2011, according to the Shared National Credits (SNC) Review for 2011.
Total criticized loans—essentially those judged as questionable by regulators—declined more than 28 percent to $321 billion in 2011. Criticized assets represented 13 percent of the overall SNC portfolio, down from 18 percent in 2010.
Questionable loans remain
The Federal Reserve attributed the improvement in credit quality to such factors as better operating performance by borrowers, debt restructurings, bankruptcy resolutions, and ongoing access to bond and equity markets. Industries that led the improvement were real estate and construction, media and telecommunications, and finance and insurance.
Past lending decisions' effects linger
Meanwhile, refinancing risk remained high as nearly $2 trillion, or 78 percent of the SNC portfolio, matures by the end of 2014. Of this maturing amount, $204 billion was criticized.
Although nonbanks, such as securitization pools, hedge funds, insurance companies, and pension funds, owned the smallest share of loan commitments, they owned the largest proportion, 58 percent, of classified credits (rated substandard, doubtful, or loss).
In other highlights of the review:
August 31, 2011