The Risk Management Association and Automated Financial Systems Metrics Find Stark Contrast between Middle Market and Business Banking Credit Quality

The Risk Management Association (RMA), in alliance with Automated Financial Systems, Inc. (AFS), has released second-quarter 2009 Risk Analysis Service (RAS) data.

The industry's only comprehensive credit risk benchmark, RAS metrics on commercial credit risk reveal continued deterioration in the middle market. The results reflect portfolio data for middle market exposure provided by 17 top-tier participating institutions, estimated to represent more than half of all middle-market commercial loans in the U.S.

"The rising level of non-accruing assets in the commercial loan portfolios is consistent with where we are in the credit cycle. These levels may rise through the end of the year, given the current state of the economy," said Ken Chalk, interim RMA president and CEO. "On a more positive note, short-term delinquencies have eased from the first quarter levels. We will need another quarter's data to determine if we have reversed the trend of rising delinquencies."

The percentage of middle market loans on nonaccrual rose for the tenth consecutive quarter and is now 2.3 percent of total outstanding balances, representing a 23 percent increase over the prior quarter and a 136 percent increase from one year ago. Key industries continuing to reflect above-average default rates include Manufacturing (3.7 percent), particularly manufacturers of wood, paper, plastics, rubber, nonmetallic mineral products, and motor vehicle parts; Agriculture (3.3 percent), and Information (2.7 percent), especially sub-sectors related to publishing, broadcasting, and wired telecommunications carriers. Short-term delinquencies in the middle market eased to .94 percent from 1.20 percent at the end of the first quarter.

Business banking credit quality is showing even greater stress than the middle market. Nonaccrual business banking loans total 3.0 percent of total outstanding balances, 33 percent higher than middle market levels. Short-term delinquencies (30 to 89 days) were 1.8 percent for business banking loans, nearly double the level for middle market delinquencies. Finally, the amount of business banking loans classified as either substandard, doubtful, or loss were 30 percent higher than those in the middle market portfolio.

The RMA/AFS Risk Analysis Service serves as global banking's industry-standard credit risk benchmark. A

The Risk Management Association is a not-for-profit, member-driven professional association whose sole purpose is to advance the use of sound risk principles in the financial services industry.

Automated Financial Systems, Inc. (AFS) is a provider of commercial lending solutions to top-tier financial institutions.

((Comments on this story may be sent to newsdesk@closeupmedia.com))

Related terms: agriculture, banking, broadcasting, business, ceo, commercial, manufacturing, market, note, plastics, president, products, profit, publishing, rates, rubber, telecommunications