The Risk Management Association (RMA), in alliance with Automated Financial Systems (AFS), has released fourth quarter data of their 2008 Risk Analysis Service (RAS). The 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 US.
“The data suggests that borrowers are increasingly tapping revolving credit lines negotiated in earlier periods,” said Kevin Blakely, RMA president and CEO. “Increasing utilisation rates result in higher regulatory capital requirements, which the industry is responding to. We expect utilisation rates under existing lines of credit to remain elevated until credit conditions ease and overall credit availability improves.”
The composite average utilisation rate under lines of credit was 47.5% as of 31 December 2008, an 18.6% increase from the year ago period. Utilisation rates began rising in the first quarter 2008, and remained elevated throughout the year. Utilisation rates vary depending on the characteristics of the borrower, such as industry segment and geography. For example, middle market borrowers with ties to the real estate sector showed the highest utilisation rates, as did borrowers domiciled in Arizona, Florida, Nevada, and South Carolina.
The percentage of middle market loans on nonaccrual rose for the eighth consecutive quarter and is now 1.5% of total outstanding balances, representing a 23% increase over the prior quarter and a 127% increase from one year ago. Middle market loans past due between 30 and 89 days spiked sharply in the quarter to 1.25%, up 54.3% from the prior quarter and double the year-ago level.
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