US Agencies Review Credit Risk at National Level
The Board of Governors of the Federal Reserve System (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) jointly published the 2021 Shared National Credit (SNC) Review Report. The SNC Program assesses risk in the largest and most complex credits in the country. The 2021 report reflects reviews conducted in the first and third quarters of 2021 and primarily covers loan commitments originated on or before June 30, 2021.
The 2021 SNC portfolio included 5,764 borrowers, totaling $5.2 trillion in commitments, an increase of 2.1% from a year ago. The 2021 SNC Review focused on borrowers in five industries that were affected significantly by the pandemic: entertainment and recreation, oil and gas, commercial real estate, retail, and transportation services. The results show that SNC credit risk for large syndicated loans improved modestly in 2021 but remains high largely due to the impact of COVID-19. SNC commitments with the lowest supervisory ratings (special mention and classified) have decreased from 12.4% in 2020 to 10.6% in 2021. Nearly half of total SNC commitments are leveraged loans and commitments to borrowers in COVID-19 affected industries represent about one-fifth of total SNC commitments. The report notes that credit risk associated with leveraged lending is high and leveraged loans comprise half of total SNC commitments but represent a disproportionately high level of the total special mention and classified exposures. The review cautions that portfolio management and stress testing processes should consider that loss and recovery rates may differ from historical levels and risks identified in stress tests should be measured against their potential impact on capital and earnings. Moreover, the review results highlight that direction of risk in 2022 will be impacted due to management of COVID-19 pandemic and other concerns such as inflation, supply chain imbalance, labor challenges, and high debt levels while vulnerability to rising rates could negatively impact the financial performance and repayment capacity of borrowers in a wide variety of industries.
Related Links
Keywords: Americas, US, Banking, Covid-19, Credit Risk, SNC Loans, US Agencies, Lending, Portfolio Management, Stress Testing, Leveraged Lending
Featured Experts
Laurent Birade
Advises U.S. and Canadian financial institutions on risk and finance integration, CCAR/DFAST stress testing, IFRS9 and CECL credit loss reserving, and credit risk practices.
James Partridge
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
Cristian deRitis
Leading economist; recognized authority and commentator on personal finance and credit, U.S. housing, economic trends and policy implications; innovator in econometric and credit modeling techniques.
Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.