FOR IMMEDIATE RELEASE
September 30, 1999
Contact: Sam Eskenazi
OCC Survey Finds Tightened Commercial Loan StandardsFor First Time In Five Years, But Credit Risk Remains High
WASHINGTON — In its fifth annual Survey of Credit Underwriting Practices, the Office of the Comptroller of the Currency (OCC) reported today that underwriting standards for commercial loans tightened at national banks for the first time in five years, while retail lending standards improved for the third consecutive year.
Despite the tightening, national bank examiners reported that the level of embedded portfolio credit risk continues to increase for every commercial and retail credit product surveyed. This is due to the higher level of risks that banks took on in previous years that takes time to work its way through a loan portfolio. The survey found that examiners expect credit risk to continue to increase over the next year.
"While I am encouraged by the findings of this year's survey," Comptroller of the Currency John D. Hawke, Jr. said in a letter to national banks accompanying the survey, "I remain concerned about the quantity and quality of credit risk among (national) banks. ... For commercial loans, the cumulative effect of the past four years of easing standards is to expose banks to increased risk of loss in the event of default."
Mr. Hawke called on bankers to act now to candidly assess existing and potential vulnerabilities in their portfolios, and to implement appropriate risk management and mitigation strategies. The Comptroller said banks should increase efforts to:
The OCC will also continue examination efforts designed to clearly identify and communicate the increased risks associated with loans with structural underwriting weaknesses to bank management and boards of directors. Additionally, the OCC will continue examiner training efforts, commenced last year, to further advance the risk evaluation and classification skills of examiners.
Mr. Hawke said that improvement in underwriting standards reported in this year's survey could be traced to a variety of factors, "including a renewed sensitivity to credit risk among lenders following the credit market turbulence of the fall of 1998, the continued high delinquency and loss rates for many retail lending products, and the efforts of bank regulators to address trends in bank underwriting practices."
The 1999 OCC survey found that:
David D. Gibbons, OCC Deputy Comptroller for Credit Risk, said that "while the survey results appear to reflect a positive change in risk tolerance of credit providers, it is important to remember that actions taken in the last year will do little to offset the cumulative effect that four years of easing standards for commercial loans has had on risk of loss inherent in bank portfolios."
The 1999 survey covered the 67 largest national banks. All companies in the 1999 survey have assets of more than $2 billion. The aggregate loan portfolios of the banks in the survey was approximately $1.8 trillion as of December 31, 1998. This represents 90 percent of all outstanding loans in national banks.
For a copy of the 1999 Survey of Credit Underwriting Practices, write to: Office of the Comptroller of the Currency, Communications Division, Washington, DC 20219. Copies can also be requested by fax at (202) 874-4448; by phone at (202) 874-5043; or by visiting the OCC's Public Reference Room at 250 E Street, S.W., Washington, DC (9 a.m. - noon and 1-3 p.m., Monday - Friday).
# # #