The Federal Reserve bank issued a statement on Monday noting that the volume of syndicated credit has risen rapidly reflecting a rise of 15 percent in merger and acquisition activity over the past year while quality control has declined slightly over the last year.
The Shared National Credit review showed that the bulk of this increase was associated with credits held by non-bank entities, while problem loans at regulated institutions, particularly those with insured deposits, grew slightly.
The review showed that most industries, such as the transportation and telecommunications sectors, have improved their credit quality from peak problems they experienced only a few years ago. Syndicated credit quality has declined slightly since last year, while total syndicated credit outstanding grew 15 percent on-year to the highest point in five years.
Examiners also found, however, a continued easing of underwriting standards in the syndicated lending market in general, particularly in non-investment grade or leveraged credit facilities, the regulators said.
On the whole, the 2006 SNC Program covered 7,009 credits which amounted to $1.9 trillion in credit commitments to 4,833 borrowers. The released review said the total SNC commitments increased by nearly $250 billion, a 15.2 percent increase from 2005. This is the largest annual expansion in nearly eight years.
The current level of commitments is slightly below the 2001 peak of $2.0 trillion, while adversely rated commitments are only 40 percent of their peak level in 2002. The results of the review is based on an analysis of this years second quarter and reflects the business and economic conditions at that time.