Softening in Commercial Real Estate Sector Indicated by RMA/AFS Risk Analysis Service


Philadelphia/Exton, PA (March 7, 2007)— Quarterly benchmarking metrics released this week by The Risk Management Association (RMA) and Automated Financial Systems, Inc. (AFS) showed some decline in credit quality in the construction industry. The fourth quarter results from the Risk Analysis Service reflect actual data for middle market loans totaling approximately $600 billion in commitments and $325 billion in outstandings provided by 17 top tier participating banks. The database is estimated to include nearly one-half of all middle market commercial loans in the U.S.

While macro-level indicators of overall middle market credit quality were relatively flat quarter-over-quarter, signs of credit distress began to emerge in certain sectors. Nonaccrual loans in the construction industry jumped 51.6%, the largest jump since the the origination of the Service in September 2003, and loans past due 30 to 89 days increased sharply, rising 15.7% from third quarter levels. Given that growth in construction lending has comprised a substantial share of total loan growth at many organizations for the past several years, these are trends warranting close attention.

The Risk Analysis Service offers the ability to benchmark credit quality in all industry sectors against peer banks and against the industry. Due to the specialized nature of commercial real estate assets, the Service now offers a dedicated reporting module focused exclusively on the needs of the commercial real estate market.

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