At the 2020 RMA Annual Risk Management Virtual Conference, risk management professionals from across the US came together for a week of insights from industry leaders, peer-sharing, and networking opportunities. One of the most popular sessions was “ Interpreting Credit Risk Performance Across the Country” presented by Doug Skinner and Tom Cronin of the RMA and AFS Risk Analysis Service and Brad Cunningham, SVP, Credit Risk Administration, Commerce Bank.
As part of its Risk Analysis Service, RMA and AFS have been aggregating and benchmarking commercial lending data since 2003, giving banks timely insight into trends in credit risk through multiple economic cycles. In their Annual Conference session, Doug Skinner moderated as Tom Cronin presented on the most recent trends shown in the Risk Analysis Service data. Brad Cunningham weighed in with his observations from his credit risk role at Commerce Bank.
Keep reading to discover a few key highlights of the session, learn how you can access the content on-demand, and subscribe to the Risk Analysis Service so you know how your institution stacks up against other banks when it comes to credit risk.
Trends in Commercial Loan Growth
According to the Risk Analysis Service, both C&I and CRE loan participations spiked heavily in March, most likely due to liquidity concerns. Since then, however, C&I loan balances have dropped consistently, while CRE loan growth has remained positive and steady, especially in the industrial and multifamily segments.
Non-Performing Loan Levels Remain High
In April 2020, the Risk Analysis Service noted record highs in the 30-59 day past-due range, with delinquencies making up 1.5% of all outstandings. Fast forward to October and delinquencies are back in their Great Recession range of slightly below 1%. Meanwhile, since the outset of the pandemic, nonaccruals have continued to climb in sectors like oil & gas, restaurants, and arts & entertainment.
Risk Migration Has Begun as Economic Recession Takes Hold
Many banks are now in the process of regrading their loan portfolios. Interestingly, while the percent criticized rate jumped in Q1 and Q2 of 2020, it showed signs of stabilizing in Q3. On the other hand, the ratio of risk rating downgrades vs. upgrades has increased significantly in the past year, with downgrades outpacing upgrades at a rate of 2.6 to 1.
Special Mention Loans Rise in Vulnerable Industries
Now eight months into the pandemic, we have a better idea of which industries are most vulnerable than we did at the outset thanks to the Risk Analysis Service’s tracking of nonaccrual levels. As of August 2020, experts on the panel identified the most special mention loans in industries such as retail, oil & gas, food services, and transportation.
Learn More about the RMA and AFS Risk Analysis Service
The above highlights just a few of the credit trends in commercial lending we track with the RMA and AFS Risk Analysis Service. Interestingly, throughout the session, Brad Cunningham shared that he has seen many of the same trends identified by the Risk Analysis Service playing out at Commerce Bank, validating the accuracy of the trends we uncover in the data.
For the latest from the Risk Analysis Service, be sure to visit our Insights page where we share recordings of our latest webinars, blogs, and monthly Commercial Credit Quality Bulletins. Check out the RMA Events Calendar to register for all upcoming monthly Credit Trends in Commercial Lending webinars, and feel free to contact us to learn more. We look forward to hearing from you!
Get This Session and Dozens More On-Demand
Want to watch the complete 25-minute session and dozens more on-demand? There’s still time to access all of the insights from the 2020 RMA Annual Risk Management Virtual Conference. Click here to learn how!