Definition of the national shared credit program

What is the National Shared Credit Program?

The Board of Governors of the US Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) formed the National Shared Credit Program in 1977 to provide an effective and consistent review and classification of large syndicated loans. A syndicated loan is a loan that a group of lenders, working in tandem, grants to a single borrower.

Key points to remember

  • The National Shared Credit Program was created by government agencies to provide efficient and consistent review and classification of large syndicated loans.
  • The aim is to analyze credit risks, trends and risk management methodologies among large syndicated loans and the financial institutions that create them.
  • The national credit sharing program aims to ensure that all loans are treated the same and to improve the efficiency of credit risk analysis and classification.
  • Loans and other debt valued at $ 100 million or more issued by at least three federally supervised lenders fall under the national credit sharing program.
  • The 2019 National Credit Program Shared Review saw an increase in borrowers and loan reviews, as well as a determination that credit risks remain high, with less protections for lenders.
  • US banks accounted for the highest percentage of commitments in the National Shared Credit Program portfolio, at 44.4% of the portfolio.

Understanding the National Shared Credit Program

The National Shared Credit Program seeks to analyze credit risks, trends and risk management methodologies among the largest and most complex loans that are issued jointly by various credit institutions. The goal is to ensure that all syndicated loans are treated on the same basis as well as to improve the efficiency of credit risk analysis and classification which is shared among financial institutions.

The agencies that govern the program began a semi-annual SNC exam schedule in 2016. These SNC exams are scheduled for the first and third quarters of the year. Depending on the lending institution, some banks will be reviewed once a year, and others twice a year.

The National Shared Credit Program examines loans and all assets considered to be debts that are valued at $ 100 million or more. Debt must be issued by at least three separate institutions and these institutions must be overseen by the federal government.

National shared credit program and syndicated loans

The main purpose of syndicated loans is to spread the risk of borrower default among several lenders. These lenders can be banks or institutional investors (wealthy individuals, pension funds and hedge funds). Since syndicated loans tend to be much larger than standard bank loans, the risk of a single borrower defaulting could cripple a single lender.

To break down syndicated loans even further, these structures are also common in the leveraged buyout community. An LBO is the acquisition of another business, using a significant amount of debt to cover the initial cost of acquisition. The assets of the acquiree are often used as collateral for loans, as well as the assets of the acquiring company. The goal of an LBO is to allow companies to make large acquisitions without committing a lot of capital.

Due to the complexity of syndicated loans, the National Shared Credit Program seeks to ensure best practice among institutions and to guard against any issues that could harm the financial markets as a whole.

2019 Results of the National Shared Credit Program

The 2019 National Shared Credit Program portfolio consisted of 5,474 borrowers, valued at $ 4.8 trillion, up from $ 4.4 trillion in 2018. The largest holder of the portfolio was US banks, with 44.4%, followed foreign banks, then other financial institutions. , such as hedge funds and insurance companies. The consensus of the report was that credit risk among leveraged loans have remained high, indicating that lenders are less protected as risks have increased. And while lenders have policies in place to protect against this risk, many of these policies have not been tested for an economic downturn.

Program loans are classified according to their level of risk; special mention, substandard, questionable or wasteful. The last three categories indicate poor performing loans and are referred to as “classified”. Loans that fell below the “pass” level represented 6.9% of the total portfolio. This is an increase from 6.7% from 2018. However, the overall growth of the portfolio has come from investment grade transactions.

About Hector Hedgepeth

Check Also

Viewpoint: The Global Impact of Barakah: Perspectives

April 07, 2021 The UAE has shown that it is possible to build a new …

Leave a Reply

Your email address will not be published.