The Risk Management Association and Automated Financial Systems Risk Analysis Service Third Quarter Metrics Reveal Continued Easing in Short-term Delinquencies, Despite Steadily Increasing Defaults
November 30, 2009
Business banking portfolio continues to experience the most adverse performance.Philadelphia, Pennsylvania (November 30, 2009) -- The Risk Management Association (RMA), in alliance with Automated Financial Systems, Inc. (AFS), recently released third 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 commercial loan market. The results reflect portfolio data for commercial lending exposure provided by 18 top-tier participating institutions. "The rising level of nonaccruing assets in the commercial loan portfolios continues to impact financial performance. These levels should rise through the end of the year, given the current state of the economy," said Ken Chalk, interim RMA president and CEO. "Overall short-term delinquencies in the middle market have fallen for the second consecutive quarter, although the business banking market continues to struggle with delinquencies almost double the level of the middle market." The percentage of commercial loans on nonaccrual rose for the eleventh consecutive quarter and stands at 3.0% of total outstanding balances, representing a 27% increase over the prior quarter and a 172% increase from one year ago. Key industries reflecting above average default rates include Manufacturing (4.0%), particularly manufacturers of wood products, furniture, electrical equipment, and fabricated metal products; Mining (3.6%); and Information (3.8%). Short-term delinquencies eased to .86% from .88% at the end of the first quarter, continuing the trend of easing from first quarter 2009. Drilling into the data and comparing credit quality in the business banking and middle market portfolios show that business banking is experiencing much greater stress than the middle market. Small business borrowers, defined within the Risk Analysis Service as clients with annual sales up to $20 million, continue to suffer more severely than middle market borrowers. Many of the businesses are service-oriented or involved in real estate rental and are closely linked to the consumer. The consumer market has not yet recovered, as evidenced by recent economic reports. Nonaccrual business banking loans total 4.0% of total outstanding balances, 43% higher than middle market levels. Short-term delinquencies (30 to 89 days) were 1.5% for business banking loans, double the level for middle market delinquencies. The large corporate market is performing relatively well, with delinquency and nonaccrual percentages of .15% and 2.0%, respectively.
About RAS The RMA/AFS Risk Analysis Service serves as global banking's only comprehensive, industry-standard credit risk benchmark. An industry-led consortium, RAS members perform actionable comparisons of their own data and that of the industry and peer banks for meaningful segments of the portfolio. Consistent with its "global reach, local markets" approach, RAS current coverage includes U.S. Commercial and Industrial, U.S. Commercial Real Estate, and European segments. RAS allows participants to gain real-time insights into changing credit quality and portfolio concentrations, answering "How do we compare?" which is especially important in these turbulent times. Subscribers to the U.S. Commercial & Industrial lending service receive a comprehensive view of the portfolio and can segment data along three distinct lines of business: large corporate, middle market, and business banking loans. RAS members also receive an expanded set of risk-rating metrics. Participating institutions are able to segment their portfolios by measures of default probability, loss given default, and expected loss, risk parameters mandated by the international Basel II rules. About The Risk Management Association
Founded in 1914, 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. RMA promotes an enterprise-wide approach to risk management that focuses on credit risk, market risk, and operational risk. Headquartered in Philadelphia, Pennsylvania, RMA has approximately 3,000 institutional members that include banks of all sizes as well as nonbank financial institutions. They are represented in the Association by 20,000 risk management professionals who are chapter members in financial centers throughout North America, Europe, and Asia/Pacific. Visit RMA on the Web at www.rmahq.org. About Automated Financial Systems, Inc.
Automated Financial Systems, Inc. (AFS) is the global leader in providing commercial lending solutions to top-tier financial institutions. AFS works with the world's 50 largest financial institutions to build lending processes based on a straight-through model and on-demand technology and services. In doing so, AFS partners with client banks to understand their strategic goals and works proactively to achieve their business and technology objectives. AFS is headquartered in Exton, Pennsylvania, a suburb of Philadelphia; its European subsidiary, Automated Financial Systems GmbH, is based in Vienna, Austria. For further information, visit www.afsvision.com. Contacts: Suzanne Wharton, RMA, Director, swharton@rmahq.org, 215-446-4089; Doug Skinner, AFS, Director, dskinner@afsvision.com, 484-875-1562.
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