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Auto-lending profits helped make the quarter for Huntington Bancshares and TCF Financial, but their CEOs ended up on the hot seat, as they reported results a day after the U.S. comptroller of the currency issued another warning about declining credit quality in the market.
October 22 -
"We are reaching that point in the cycle where credit risk is moving to the forefront" of regulatory concerns, Comptroller Thomas Curry warned Wednesday.
October 21 -
Comptroller of the Currency Thomas Curry said banks could consider loan-to-value ratios above 90% to help revitalize areas hurt by the housing crisis.
September 9
WASHINGTON — Banks have loosened underwriting standards for the third year in a row, reaching levels that are now similar to the 2005-7 period before the financial crisis, according to a report released Wednesday by the Office of the Comptroller of the Currency.
The agency's Annual Survey of Credit Underwriting Practices, which looked at 95 of the largest banks and thrifts supervised by the OCC, found lenders continue to lower their underwriting standards across both retail and commercial loans in order to grow their portfolio and find better yields.
"We are seeing trends very similar to those that examiners reported just prior to the most recent financial crisis," Jennifer Kelly, the OCC's senior deputy comptroller and chief national bank examiner, said in a press release. "With credit risk on the rise, OCC examiners will remain focused on evaluating new loan originations to assess banks' and federal savings associations' efforts to maintain prudent underwriting standards and practices through this stage of the credit cycle."
Large banks reported the greatest underwriting easement for the 12-month period that ended June 30. Commercial real estate construction, indirect consumer, credit cards and leverage loans had the most significant loosening in standards, the OCC said.
As for retail credit, the agency found 27% of the banks had lowered their standards, marking the highest level of easement since 2006. Only 1% of banks surveyed had tightened their underwriting standards for retail credit during this same period.
"Retail loan products with the most easing were indirect consumer loans and credit cards," the OCC said. "Examiners also noted that the underwriting factors most likely to be adjusted in these portfolios were changes in the maximum size of the credit line, pricing, fees, debt-to-income ratios, scorecard cutoffs, and documentation requirements."
OCC examiners found that 30% of the banks in the survey eased credit standards for commercial loans, even though "the majority of standards remained unchanged," the survey said. The agency said 64% of the banks had adjusted their pricing on a commercial loan as the main method for easing standards.
Lenders were also adding more exceptions into their loan policies in order to attract business, mostly in the commercial space, the agency said.
"The combination of increasing policy exceptions and easing of underwriting standards can increase portfolio risk to excessive levels and result in less resilient portfolios during times of stress," the OCC said. "Boards of directors and senior management should carefully consider the impact of eased underwriting standards on the quality and volatility of performance in their loan portfolios, particularly for products that have already seen considerable easing over the past several years, such as leveraged lending, CRE loans, indirect consumer lending and credit cards."
The survey covered more than $5 trillion in loans, which represented 94% of all loans in the federal banking system.
