During the Credit Trends in Commercial Lending webinar, co-hosted with our partner, Automated Financial Systems (AFS), RMA featured proprietary datasets on commercial lending through December 2021. Panelists offered observations on year-on-year performance of C&I loans in the U.S, with a focus on near-term recoveries of businesses coming out of the pandemic.
Carly Edmondson, senior product manager of business solutions at RMA, and Tom Cronin, production, implementation and training manager for the AFS Credit Risk Navigator, presented the recent trends shown in the Credit Risk Navigator data. The panel also included Geoff Green, credit portfolio management and head of research at Regions Bank, Ken Carson, credit policy director at Umpqua Bank, and Brad Cunningham, credit risk administration manager of Commerce Bank.
Here are three key takeaways for C&I credit risk managers:
Short-Term Delinquencies Doubled
The C&I short-term delinquency rate across all industries went up to 50 basis points, or 0.5%, as of December 2021. The same rate was in the range of 20 to 30 basis points in the previous year.
Payment deferral programs and other short-term economic reliefs were still in effect as of December 2020. As Commerce Bank’s Brad Cunningham explained, “Delinquency wasn’t really an issue as there were enough government stimulus checks for the businesses to get through what was going on.”
The delinquency rate from the finance and insurance sector exceeded 100 basis points, up from about 20 basis points in December 2020. This sector includes businesses dealing with securities, commodity exchanges, mortgage companies, and nonbank lenders. “Companies involved in highly leveraged transactions started to have some issues, which were reverberating back into the companies that the banks are lending to,” said AFS’s Tom Cronin.
Spotlight on Agri Lending, Oil and Gas
The agriculture sector recorded highs in the 30-59 days past due category, with delinquencies up to 75 basis points from last year’s 35 basis points. Nonaccrual loans – payments overdue by 90 days or more – have increased in agriculture, forestry, fishing, and hunting.
Panelists suggested that external risk factors may have impacted short term credit performance in the agriculture and forestry sectors. “California, Oregon, and parts of Washington states are experiencing the century’s longest droughts and water is a huge issue,” Ken Carson at Umpqua Bank said.
The oil and gas sector’s annual delinquency rate improved by the end of 2021. Regions Bank’s Geoff Green cautioned “Oil price reaching $100 per barrel is good for that sector in the near-term, but it is highly volatile, so we continue to watch it closely.”
Wins and Losses in Hotels and Restaurants
The travel-oriented sectors are recovering, according to criticized loan balance data. The hotel sector’s short-term recovery seemed slower than other non-business travel-related sectors, according to the panelists, and segments of the food services industry are also struggling. Portfolio managers are looking deeper to estimate the future performance of the borrower. “If you were in the fast-food businesses or had a good delivery service, you did fantastically. Other options didn’t even survive because they were reliant on the dining traffic,” said Carson.
Participating bank lenders saw 30% year-on-year growth in short-term borrowing activities from the finance and insurance sector, led by private equity firms, mortgage companies, and other nonbank lenders. The data represented the annual growth in C&I loan outstanding balances as of December 2021. Credit Risk Navigator’s C&I loan data only included business loans to companies generating revenues exceeding $1 million.
Did you know that RMA and AFS Credit Risk Navigator is the largest monthly commercial loan benchmarking database in the U.S.?
RMA and AFS have been aggregating and benchmarking commercial lending data since 2003, helping banks to acquire a timely insight into business credit performance trends through multiple credit cycles.
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