Credit risk in large, syndicated loans of more than $20 million remains high, according to the interagency Shared National Credits Review released yesterday. Elevated credit risk was driven by a 31.8 percent year-on-year increase in leveraged lending, loose underwriting and ongoing weakness in the oil and gas sector, which accounts for 7.1 percent of the SNC portfolio.
Total SNC commitments rose 15.3 percent from 2014 to $3.9 trillion, while outstanding SNCs rose 19 percent to $1.9 trillion. Classified assets — those rated substandard, doubtful or loss — represented 5.6 percent of the portfolio, up slightly from 2014. Oil and gas borrowers accounted for 15 percent of the classified portfolio compared with 3.6 percent in 2014, further underlining the weakness of the oil market. The review noted that nonbanks owned two-thirds of all classified credits, while U.S. banks owned only 17.8 percent of classified SNCs.
While examiners found improved compliance with the agencies’ 2013 leveraged lending guidance, the review identified areas for improvement in underwriting and leveraged loan risk management. It noted that more than one-third of leveraged transactions originated in the past year had structures that examiners called “weak.”