The three federal banking agencies issued the 2024 Shared National Credit (SNC) report, describing credit risk associated with large, syndicated bank loans, as well as credit quality trends connected to the current state of interest rates.
Based on a portfolio of 6,699 borrowers totaling $6.5 trillion in loans originated on or before June 30, 2024, examiners made determinations about leveraged loans and stressed borrowers from various industry sectors. They also assessed aggregate loan commitments of $100 million or more that are shared by multiple regulated financial institutions.
Per the report, moderate syndicated bank loans present only moderate credit risk but pressure from higher interest rates have a negative impact on credit quality for leveraged borrowers and compressed operating margins in some industry sectors.
“There was a modest increase in the severity of risk due to a migration of commitments from special mention to a classified rating,” the report stated. “The trend reflects the continued pressure of higher interest rates, which have increased significantly since early 2022, and the impact of compressed operating margins in some industry sectors.”
Throughout the year, the agencies anticipate the magnitude and direction of risk to be affected by borrowers’ ability to manage interest expenses, real estate conditions, and other macroeconomic factors.
The percentage of loans deemed to warrant close attention from management – including “non-pass” loans comprised of SNC commitments rated “special mention” and “classified” – increased from 8.9 percent of total commitments to 9.1 percent year-over-year, according to the report.
While U.S. banks hold 45 percent of all SNC commitments, they hold only 23 percent of non-pass loans. Nearly half of total SNC commitments are leveraged, and leveraged loans comprise 79 percent of non-pass loans.
The report was created and released through a coordinated effort by the Federal Reserve, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency.