Monitor problem loans across your industry

7/24/2020
Monitor problem loans across your industry

See our breakdown of problem loans by bank portfolio size, segment, and more.

During severe and unpredictable economic turbulence, an industry-level view of problem loans can provide a better sense of overall health of the banking sector – and possibly help you anticipate new developments at your bank or financial services company.

We’ve developed a series of visuals that break down problem loans across the banking sector, as well as analysis of how these loans got here and where they’re headed.1

Problem loans % of total loans by asset size: Two-decade view

 Problem loans % of total loans by asset size: Two-decade view

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.

Problem loans % of total loans by asset size: Two-year view

 Problem loans % of total loans by asset size: Two-year view

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.

Problem loans % of total loans by portfolio segment: Two-decade view

 Problem loans % of total loans by portfolio segment: Two-decade view

The Great Recession was largely real estate-driven: Construction problem loans were by far the most significant, peaking at 25.85% in the first quarter of 2011. Residential problem loans peaked at 15.06% in the fourth quarter of 2011, and commercial and industrial loans topped out at 2.13% in the third quarter of 2009.

Commercial real estate (CRE) income-producing problem loans crested at 7.97% in the first quarter of 2011. They sat at 0.74% as of the first quarter of 2020. We expect to see a higher volume in this category compared to the prior recession, as office and retail properties are expected to struggle.

 

The full report includes the call report mapping for the aggregate portfolios and problem loan metrics.

Want to take a deeper dive into problem loans?
We also break them down by portfolio segment for each asset size. Download these graphs to get more valuable insights as you identify and manage problem loans at your business.

Don’t get overwhelmed by problem loans

Stay ahead of the problem with current, accurate data and proactive strategies. Our experienced team can help.
Ryan Michalik
Ryan Michalik
keever-dave-225
Dave Keever
Principal