The Risk Management Association and Automated Financial Systems’ Risk Analysis Service Third Quarter Metrics Reflect Continued Deterioration in U.S. Middle Market Credit Quality

27 November 2008

The Risk Management Association (RMA), in alliance with Automated Financial Systems, Inc. (AFS), today released third quarter of 2008 Risk Analysis Service (RAS) data. The industry’s only comprehensive credit risk benchmark, RAS metrics on commercial credit risk reveal continued deterioration in the middle market and 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.

“An erosion of this magnitude in the middle market is not a surprise, and we anticipate it to continue into 2009,” said Kevin Blakely, RMA president and CEO. “Importantly, we believe that as these conditions persist market-wide, institutions need to plan for the continued, downward swing by shoring up risk and capital management best practices to maximize both capital and liquidity.”

The percentage of middle market loans on nonaccrual rose for the seventh consecutive quarter and is now 1.17% of total outstanding balances, representing an 18% increase over the prior quarter and a 113% increase from one year ago. Non-current loans – loans past due 90 days and over plus loans on nonaccrual – represented 1.37% – a high water mark since the inception of the program in September 2003. Middle market loans past due between 30 and 89 days leveled off slightly in the quarter, totaling 0.81% of total outstanding balances, relatively unchanged from the prior quarter.

From an industry perspective, middle-market loans with ties to the construction sector continue to lead the deterioration, with 4.3% of these loans now being reported as nonaccruing, up 25% from the prior quarter and 260% year over year. Other prominent industry sectors’ nonaccrual levels were arts, entertainment, and recreation (1.6%); retail trade (1.5%); manufacturing (0.8%); wholesale trade (0.7%); and health care (0.2%).

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