The federal bank regulatory agencies today reported in the 2022 Shared National Credit (SNC) report that credit quality associated with large syndicated bank loans improved in 2022, but noted the results do not fully reflect increasing interest rates and softening economic conditions that began to impact borrowers in the second half of 2022.
Overall, the report finds that credit risks for syndicated loans—large loans originated by multiple banks—were moderate at the end of the review period. While risks to borrowers impacted by COVID-19 have declined, they remain high for leveraged loans, as well as the entertainment, recreation, and transportation services industries.
The 2022 review, which evaluates the quality of large, syndicated loans, was conducted by the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency, and reflects the examination of SNC loans originated on or before June 30, 2022. Consistent with the approach taken in 2021, it 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 2022 SNC portfolio included 6,214 borrowers, totaling $5.9 trillion in commitments, an increase of 13.9 percent from a year ago. The percentage of loans that deserve management's close attention (loans rated non-pass, including special mention and classified SNC commitments) decreased from 10.6 percent of total commitments to 7.0 percent year over year. Nearly half of total SNC commitments are leveraged loans, and commitments to borrowers in industries affected by COVID-19 represent about one-fifth of total SNC commitments. For leveraged borrowers that also operate in COVID-19 affected industries, non-pass loans decreased to 18.9 percent, but remain above the 13.5 percent observed in 2019. While U.S. banks hold nearly 45 percent of all SNC commitments, they hold only 21 percent of non-pass loans.
About the Shared National Credit Program
The Shared National Credit (SNC) Program assesses risk in the largest and most complex credit facilities shared by multiple regulated financial institutions. The SNC Program is governed by an interagency agreement among the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency (the agencies). The program began in 1977 to review borrowers with minimum aggregate loan commitments totaling $20 million or more that were shared by two or more regulated financial institutions (banks). A program modification in 1998 increased the minimum number of regulated financial institutions from two to three. To adjust for inflationand changes in average loan size, the agencies increased the minimum aggregate loan commitment threshold from $20 million to $100 million effective January 1, 2018.
Overall SNC Population
The 2022 SNC population totaled $5.9 trillion in commitments. Total commitments increased significantly by $718 billion, or 13.9 percent year-over-year, with an increase of $533 billion in loans reported as investment grade by the agent bank. Outstanding balances increased by 22.1 percent due to strong commitment growth and increased utilization of revolving credit facilities. The number of borrowers and credit facilities increased again in 2022.
Summary of Results
Sure am glad GameStop only has the low interest French Loan!
Leverage is an issue though!
Speaking of leverage, former Vice Chair Lael Brainard (left to become Joe Biden's economic advisor) back in November:
'the risk that a shock could lead to the amplification of vulnerabilities, for instance due to strained liquidity in core financial markets or hidden leverage.'.
There wouldn't be any hidden leverage in these numbers now would there?...
Lastly, look how total Outstanding balances have exploded since 1989: