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News Release 2001-59
June 27, 2001
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WASHINGTON — The OCC's seventh annual Survey of Credit Underwriting Practices found that underwriting standards for commercial and retail loans tightened during the 12-month period ending March 31, 2001. Tightening was most pronounced in the syndicated national and structured finance (leveraged lending) commercial loan products where standards were eased most in prior years, and where credit problems developed even before the economy slowed.
Previous underwriting surveys indicated rising levels of credit risk in bank loan portfolios. In today's less favorable economic climate, a number of factors—eased underwriting and risk selection practices, and rising business and household debt and leverage—are affecting credit quality.
"Reported tightening appears to be a rational response to prior practices and increases in problem loan levels," said Comptroller of the Currency John D. Hawke, Jr. "I am pleased that bankers are taking steps to improve underwriting practices and credit risk recognition."
While the overall volume of problem credits remains moderate, Mr. Hawke indicated that some banks need to improve risk identification and management. "I urge bankers to consider the lessons learned from this experience of allowing short-term earnings pressures to unduly influence their risk taking and risk management processes. For banks to be fully capable of serving the interests of their customers and shareholders over the long term, they must maintain strong and stable credit risk management processes at all times," Mr. Hawke said.
With today's uncertain conditions and problem loan levels on the rise, Deputy Comptroller for Credit Risk David D. Gibbons said banks should ensure that:
The OCC will continue to focus supervisory attention and resources to ensure that credit risk in national banks is accurately rated and that credit risk management practices and allowances for loan and lease loss levels are commensurate with risk levels.
The 2001 survey covered the 66 largest national banks with an aggregate loan portfolio of $2 trillion, or 90 percent of national bank loans. The Office of the Comptroller of the Currency¡¦s senior examiners completed a series of questions concerning 16 types of commercial and retail credit focusing on the direction of lending standards and the level of inherent risk in the portfolio and products of the banks they supervise.
The 2001 OCC survey found that:
For a copy of the 2001 Survey of Credit Underwriting Practices, write to: Office of the Comptroller of the Currency, Communications Division, Washington, DC 20219. A copy is also available on the OCC's Website: www.occ.treas.gov.
Robert Garsson (202) 874-5770