Increase in Adversely Rated Syndicated Bank Loans
November 24, 1999
Circular No. 11208

To All State Member Banks, Bank Holding Companies, and Branches and Agencies of Foreign Banks in the Second Federal Reserve District:

The following is from a joint statement issued on November 10 by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency:

Syndicated bank loans rated adversely by examiners increased in 1999 from low levels, according to data released today by the three federal bank regulatory agencies.

The agencies released aggregate data for the past six years and data by major industry sectors for the past three years.

Under the Shared National Credit (SNC) Program, the agencies review large syndicated loans annually, usually in May and June. The program, established in 1977, is designed to provide an efficient and consistent review and classification of any loan or loan commitment shared by three or more institutions and totaling $20 million or more.

In 1999, the SNC Program covered 8,974 credits to 5,587 borrowers totaling $1.8 trillion in drawn and undrawn loan commitments. Of the total, $37.4 billion, or 2 percent, was classified adversely because of default or other significant credit concerns. That was up from the lowest level this decade, 1.3 percent in 1998, but still significantly below the 4.1 percent level reached in 1994.

Borrowers have drawn down about a third of the $1.8 trillion in loan commitments, or $630 billion. Of this amount, $33 billion, or 5.3 percent, was classified adversely, up from 3.2 percent in 1998 but down from 11 percent in 1994.

The percentage of adversely classified credits rose in 1999 for most major industry sectors compared with 1998. The rise was sharpest for service industries because of a large increase in problem loans in the health-care sector. Other industries recording an increase included oil and gas and wholesale and retail trade.

Credit listed as "special mention" by examiners because of potential weakness - a less serious category than the three adverse classifications: substandard, doubtful, and loss - totaled $31.4 billion in 1999, up from $22.8 billion in 1998 but about the same as in 1994.

The tables reflecting the data discussed in the joint statement are available. Questions on this matter should be directed, at this Bank, to Laurence C. Bonnemere, Assistant Vice President.