Shared National Credit volume and criticized credits volume rose in 2007, SNC review finds

By Sara Rosenberg

New York, Sept. 25 - The volume of Shared National Credits, which include syndicated loans and loan commitments, letters of credit, commercial leases, as well as other forms of credit, rose in 2007 reflecting, in part, significant merger and acquisition lending, according to the SNC review results that were released by federal bank and thrift regulators and are based on analyses prepared in the second quarter of 2007.

The 2007 review also found an increase in the volume of criticized credits, which are the total of credits classified substandard, doubtful and loss - and credits rated special mention. However, the volume of criticized credits as a share of total commitments remained low by historical comparison and is indicative of satisfactory credit quality.

In aggregate, the 2007 Shared National Credits portfolio included 7,686 credits totaling $2.3 trillion in credit commitments to 5,264 obligors. This is an increase of $401 billion, or 21.4%, over 2006 results. This is the largest percentage increase since 1998.

Total outstandings, or drawn amounts, of $835 billion were up 33.4% from the prior year, the largest increase in both dollar and percentage terms in the past 18 years.

And, outstandings as a percent of total commitments increased to 37% in 2007 from 33% in 2006.

Criticized commitments rose to $114 billion, but still remained less than half of their peak dollar level in 2002. Criticized credits represent a modest 5% of total commitments, about the same rate experienced over the past three reviews.

As for classified credits, which are only those rated substandard, doubtful and loss, those rose 16% to $71.6 billion in 2007 from $61.8 billion in 2006.

Of the total classified credits, classified substandard rose $11.5 billion, or 20%, from the 2006 review, doubtful credits decreased $1.3 billion, or 54%, and credits classified as loss fell $400 million, a 34% reduction from the prior year.

Of the total commitments in the portfolio, 42.7% is held by U.S. banking institutions, 41.4% is held by foreign banking organizations and 15.9% is held by non-banks.

Credits in the manufacturing sector continue to comprise the largest industry component of the portfolio at $570 billion, or 25% of total commitments, followed by financial services and insurance at 20%, and oil, gas, pipelines, and utilities at 12%.

Criticized credits are heavily concentrated in the manufacturing and telecommunications and cable (telecom) sectors. Together, these portfolios comprise 63% of total criticized credits and 72% of total classified credits.

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