Risk Management Association Third Quarter Metrics Reflect Continued Deterioration in US Middle Market Credit Quality
The Risk Management Association (RMA), in alliance with Automated Financial Systems, Inc. (AFS), has released third quarter of 2008 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
and 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 US.
“An erosion of this magnitude in the middle market is not a surprise, and we anticipate it to continue through the fourth quarter,” said Kevin Blakely, RMA president and CEO. “Importantly, we believe that as these conditions persist market-wide, institutions need to plan for the continued, downward swing by shoring up risk and capital management best practices to maximise both capital and liquidity.”
The percentage of middle market loans on non-accrual rose for the seventh consecutive quarter and is now 1.17% of total outstanding balances,
representing an 18% increase over the prior quarter and a 113% increase from one year ago. Non-current loans – loans past due 90 days and over plus loans on non-accrual – represented 1.37% – a high water mark since the inception of the programme in September 2003. Middle market loans past due between 30 and 89 days leveled off slightly in the quarter, totaling 0.81% of total outstanding balances, relatively unchanged from the prior quarter.
From an industry perspective, middle market loans with ties to the construction sector continue to lead the deterioration, with 4.3% of these loans now being reported as non-accruing, up 25% from the prior quarter and 260% year over year. Other prominent industry sectors’ non-accrual levels were arts, entertainment, and recreation (1.6%); retail trade (1.5%); manufacturing (0.8%); wholesale trade (0.7%); and health care (0.2%).