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WBK Industry News - Federal Regulatory Developments

Review of Shared National Credit Portfolio Finds Risk Remains High

According to the most recent Shared National Credit (SNC) Program Review released by the Federal Reserve Board (Federal Reserve), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC), the portfolio of large syndicated bank loan risk remains elevated even though there was a slight decline.

The SNC portfolio high level of risk is primarily due to distressed borrowers in the oil and gas sector and other industry sector borrowers exhibiting excessive leverage. It was also reported that underwriting and credit risk management practices continue to improve.

The review lists other findings including:

  • Year-over-year the percentages of non-pass commitments percentages decreased from 10.3 percent to 9.7 percent of the SNC portfolio. Commitments rated special mention and classified decreased from $421.4 billion in 2016 to $417.6 billion in 2017.
  • The use of aggressive projections were noted by examiners as a common theme in the non-pass originations despite the result of underwriting improvements and non-pass loan originations being at a low level.
  • The primary contributor to the overall special mention and classified rate was leveraged lending. Leveraged loans comprised 64.9 percent of all SNC special mention and classified commitments. Oil and gas loans comprised 25.7 percent of all SNC special mention and classified commitments.
  • The share of credits rated special mention and classified held by non-bank entities decreased from 60.8 5 in 2016 to 56.1 percent this year. It was noted that this trend began in 2015 and is due to a relatively low dollar volume (10.7 percent) of oil and gas loans held by non-banks.
  • $317 billion of leveraged loans in the lowest-rated pass category raises additional supervisory concerns should economic conditions decline.