The Risk Management Association and Automated Financial Systems’ Risk Analysis Service Metrics Show Further Deterioration in U.S. Middle Market Credit Quality

12 August 2008

The Risk Management Association (RMA), in alliance with Automated Financial Systems, Inc. (AFS), this week released its Risk Analysis Service (RAS) data. Representing the industry’s only comprehensive credit risk benchmark, today’s RAS metrics on commercial credit risk reveal ongoing deterioration in the middle market through the second quarter of 2008. These results 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 U.S.

“The data clearly shows that delinquencies and nonaccruals are rising. We are in the downward swing of the business cycle, so we can expect continued asset quality deterioration for a period of time,” said Kevin Blakely, RMA president and CEO.

The percentage of middle market loans on nonaccrual rose for the sixth consecutive quarter and is now 0.98% of total outstanding balances. This figure represents a 20% increase over the prior quarter and a 78% increase from one year ago. Delinquency data also suggests that U.S. middle market credit quality has yet to crest. Middle market loans past due between 30 and 89 days now represent 0.83% of total outstanding balances, the highest level since the inception of the program in September 2003. Delinquent loan levels have increased 73% from year-ago levels.

From an industry perspective, middle market loans with ties to the construction sector continue to lead the deterioration, with 3.4% of these loans now being reported as nonaccruing, up 35% from the prior quarter and 233% year over year. Other prominent industry sectors’ nonaccrual levels were arts, entertainment, and recreation (1.6%); retail trade (1.4%); manufacturing (0.7%); wholesale trade (0.6%); and health care (0.3%).

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