On Feb. 16, 2024, the board of governors of the Federal Reserve System (the Federal Reserve), the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC, and together with the Federal Reserve and the FDIC, the “regulators”) released the results of the first- and third-quarter 2023 Shared National Credit (SNC) Program Reviews, the process by which the regulators assess credit risk and trends as well as risk management practices with respect to the largest and most complex credits shared by multiple regulated banks.

SNC reviews began in 1977 and review credits with a minimum of $100 million shared by two or more regulated banks. They are completed in the first and third quarters of the calendar year. Large agent banks undergo two reviews each year, while most other agent banks undergo one review each year.

The highlights of the 2023 SNC Program Review include findings by the regulators that overall credit risk increased but remains moderate. The trend reflects the pressure of higher interest rates on leveraged borrowers and the impact of compressed operating margins in some industry sectors. Commitments rated special mention and classified (non-pass) have increased from 7.0% of total commitments in 2022 to 8.9% in 2023. The higher rate of special mention and classified commitments in 2023 was driven by declining credit quality in technology, telecom and media as well as in the health care and pharmaceutical industry segments, which comprised one-third of the total special mention and classified commitments. While the overall level of special mention and classified commitments in the real estate sector remained below the portfolio average, the office subsector reflected weakness because of secular changes in the workplace.

The regulators stated 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, and that these conditions will continue to impact the financial performance and repayment capacity of borrowers in a wide variety of industries, especially highly leveraged borrowers that may lack the financial flexibility to respond to external challenges.

The press release issued by the regulators regarding the 2023 SNC Program Review can be found here. The full report can be found here.