Federal Reserve Board – Agencies issue 2023 Shared National Credit Program report

Federal bank regulatory agencies today reported in the 2023 Shared National Credit (SNC) report that credit quality associated with large, syndicated bank loans remains moderate. However, the agencies noted declining credit quality trends due to the pressure of higher interest rates on leveraged borrowers and compressed operating margins in some industry sectors.

Risks in leveraged loans remain high, and risks in certain industries, including technology, telecom and media; health care and pharmaceuticals; and transportation services are also elevated. Risk in the real estate and construction sector is segmented, with deteriorating trends in some sub-sectors being offset by stability and/or improvement in other sub-sectors. Industries affected by the pandemic, including transportation services and entertainment/recreation, continue to show notable improvement.

The 2023 review reflects the examination of SNC loans originated on or before June 30, 2023. The review focused on leveraged loans and stressed borrowers from various industry sectors.

The 2023 SNC portfolio included 6,589 borrowers, totaling $6.4 trillion in commitments, an increase of 8.7 percent from a year ago. The percentage of loans that deserve management’s close attention (“non-pass” loans comprised of SNC commitments rated “special mention” and “classified”) increased from 7.0 percent of total commitments to 8.9 percent year over year. While U.S. banks hold 46 percent of all SNC commitments, they hold only 20 percent of non-pass loans. Nearly half of total SNC commitments are leveraged, and leveraged loans comprise 86 percent of non-pass loans.