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Thursday, August 25, 2011

Credit Quality of Large Loan Commitments Improves for Second Consecutive Year

The credit quality of large loan commitments improved in 2011 for the second consecutive year, according to the Federal Reserve's Shared National Credits (SNC) Review for 2011.

Total criticized loans declined more than 28% to $321 billion in 2011, representing 13% of the SNC portfolio, down from 18% in 2010. Loans rated as doubtful or loss--the two weakest categories--fell 50% to $24 billion in 2011.

Although nonbanks owned the smallest share of loan commitments, they owned the largest share (58%) of classified credits. FDIC-insured institutions owned only 17% of classified assets and 15% of nonaccrual loans, while nonbanks and foreign banks held the remainder.

Despite progress, poorly underwritten loans originated in 2006 and 2007 continue to weigh on performance, comprising 60% of criticized assets.

Better borrower performance, debt restructurings, bankruptcy resolutions, and access to bond and equity markets are responsible for the improvement. Real estate and construction, media and telecommunications, and finance and insurance companies led the improvement.

See the full report.

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