Bank-stock investors fretting over bad loans got more bad news Tuesday.
Federal bank regulators reported a 69% rise in at-risk syndicated loans from year-ago levels. That means an increasing amount of loans to companies are going bad, a finding that will deepen fears about credit quality in the nation's banking system.
The percentage of syndicated loans considered troubled, either by default or major credit concerns, rose to 3.3% this year from 2% in 1999. Syndicated loans are loans made by three or more institutions and thus have negative implications for a number of lenders when the loans go bad.
Shared National Credit
, or SNC, program, three government agencies review large syndicated loans on an annual basis to provide an overview of the industry. Any loan or commitment shared by three or more supervised institutions that totals more than $20 million is included.
The regulators -- the
Federal Reserve System, the
Office of the Comptroller of the Currency
Federal Deposit Insurance Corp.
-- have three classes of at-risk loans, which, as a group, are called "classified" loans in the survey. The three classes, in descending order of creditworthiness, are: substandard, doubtful and loss.
The 2000 examination found that $63.3 billion of roughly $2 trillion in syndicated loans were at-risk, a whopping 69% increase on 1999's $37.4 billion. This rate of growth far exceeds the 6% increase in the total amount of syndicated loans outstanding over the year.
The report said problem loans in the health care services sector continued to increase after significant deterioration in 1999 and that the sector remains the industry with the highest relative concentration of classified SNC loans.
After banks like
reported sharply higher nonperforming loans earlier this year, investors have been keen to view the results of this survey. The results can hardly be considered reassuring.
Investors will likely keep a close watch on this issue as the earnings season kicks off. Credit quality was an issue in an earlier
bank earnings release today. Also see
stories dealing with the issue of
loan losses at banks.