According to the report, U.S. and foreign banks continue to own the largest share of SNC commitments, while nonbanks hold the largest share of special mention and classified (“non-pass”) loans.
In 2023, SNC commitments totaled $6.4 trillion, an increase of 8.7% year-over-year (with 86% of the increase reported as investment grade loans). Special mention commitments showed an increase of 44.4% YoY and classified commitments showed an increase of 35.8% YoY. The aggregate non-pass rate remains above 2019’s pre-pandemic 6.9%.
The report finds that SNC credit risk increased in 2023 but remains moderate, with commitments rated non-pass increasing from 7% of total commitments in 2022 to 8.9% in 2023. This increase, the report notes, was driven by declining credit quality in technology, telecom and media and healthcare and pharmaceuticals.
The bank agencies focused on four industry segments in their 2023 SNC reviews: healthcare and pharmaceuticals, real estate and construction, technology, telecom and media and transportation services. Transportation services remains the highest non-pass rate at 22.1% of total commitments in the four industry segments, trailed by technology, telecom and media at 19.3%, healthcare and pharmaceuticals at 14.4% and commercial real estate at 5.7%.
The report states that while leveraged loans comprise nearly half of total commitments, they represent a disproportionately high percentage of the total non-pass exposures. Further, nonbanks hold a significant portion of non-pass leveraged commitments and non-investment grade equivalent leveraged term loans compared to banks’ leveraged exposure (61% of agent-bank identified leveraged loans) primarily comprising investment-grade equivalent revolving credit facilities. Specifically, nonbanks hold a disproportionate 65% share of all non-pass rated loan commitments, which translates to 27.5% of total commitments.
The report notes that the magnitude and direction of risk in 2024 will be impacted by borrowers’ ability to manage through shifts in interest rates, the commercial real estate sector and other external factors.
