Agencies Find Improved Credit Quality, Lingering Risk in SNC Program

The federal banking agencies have found improved credit quality in the Shared National Credit portfolio, a bundle of large syndicated bank loans that includes 8,571 credit facilities and 5,314 borrowers — and totals $4.4 trillion, according to the SNC Review released today. Despite the improvement, however, risk remains elevated compared to prior economic cycles, they noted.

The report, released by the Fed, the FDIC and the OCC, also found increased risks associated with leveraged lending. “The agencies remind banks to update credit risk management practices as the risk profile of borrowers and the industry changes,” the agencies said.

Total SNC commitments were up 3 percent year-on-year, while the total number of credit facilities declined from 11,350 in 2017 to 8,571 in 2018. Outstanding SNCs dropped 2 percent to $2.11 trillion. U.S. banks held the greatest volume of SNC commitments at 44.3 percent of the portfolio, followed by foreign banking organizations and other investors.

Leveraged loans accounted for 72.8 percent of all special mention commitments (which are non-classified commitments that examiners flag for concern). It was also the primary contributor to the SNC portfolio’s combined special mention and classified commitment rate of 6.7 percent. (This includes all commitments rated special mention, substandard, doubtful and loss.) The review noted that nonbanks owned 62.1 percent of all special mention and classified credits, while U.S. banks owned 20.3 percent.