Monitor problem loans across your industry

Problem loans accounted for 1.42% of loans immediately prior to the last recession. They reached a peak of 9.27% as of March 31, 2011, an increase of more than six times the last pre-recession percentage. (It’s worth noting that the large increase in quarterly problem loan assets in the first quarter of 2011 was related to a significant increase in troubled debt restructuring (TDR) classification.)

At 2.15% as of Dec. 31, 2019, the percentage of problem loans was at a slightly higher starting point than before the Great Recession. We can expect to see a continued increase in problem loans, but it’s unclear yet if they’ll reach – or even surpass – the peak of that recession.

Even though unemployment increased from 3.5% to 4.4% in the first quarter of this calendar year, problem loans remained relatively stable at approximately 2%. The first statewide shelter-in-place order wasn’t issued until March 19 in California, but that increased to 21 states by March 26.

In the first quarter of this year, banks with $7 billion-$15 billion in total loans have the lowest volume of problem loans at 1.38%, while those with $15 billion-$50 billion have the highest at 2.49%. While problem loan volume should rise once the final numbers are in for the second quarter, increases will be muted by TDR relief provisions afforded by the Coronavirus Aid, Relief, and Economic Security Act and various regulatory bodies, including other stimulus programs like PPP.