Federal regulators released special loan data for the first time Wednesday to reinforce their repeated warnings that credit quality is job No. 1. Syndicated bank loans rated adversely by examiners - that is, either "classified" or "special mention" - ballooned this year to $37.4 billion, or 2% of the $1.83 trillion of credit either lent or promised. While still a small portion of the total, it represents a 70% increase over 1998, when examiners questioned $22 billion, or 1.25%, of $1.76 trillion. "These levels don't reflect serious safety and soundness issues," said Richard Spillenkothen, director of the Federal Reserve Board's division of banking supervision and regulation. But they do reflect "a need to focus on sound lending practices, to the extent that lenders are overly optimistic," he said. The data come from the Shared National Credit Program, which regulators began in 1977 as a way to keep tabs on loans and loan commitments shared by institutions and totaling $20 million or more. The Fed, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corp. conduct the review each year in late spring, using March 31 data. Sung Won Sohn, senior vice president and chief economist of Wells Fargo & Co., said the amount of problem syndicated credits could continue to rise because many financed dicey merger deals. "Many deals are running into problems not because of the economy, but because they were underwritten incorrectly," he said. "If the economy softens, there could be more problems." But David Eyles, vice chairman and chief credit officer of FleetBoston Financial Group, played down the significance of the increase. "That slippage is not any cause for undue concern," he said. "That percentage increase may seem sizable, but if you put it in the historical context it's up modestly." The worst year for syndicated lending this decade was 1994, when 4.1% of the credits were rated adversely. At that time the volume of the business was less than half what it is today. "I note there is a pretty big increase this year, but it's off of a low base," said David D. Gibbons, deputy comptroller for credit risk. Mr. Gibbons said the data are consistent with the deterioration in underwriting standards to which regulators have been calling attention for years in public announcements and meetings with individual lenders. Regulators have released some summary figures in the past, but this year the agencies decided to release detailed data, broken down by type of borrower, as a way to better inform lenders. Pam Martin, director of regulator relations at Robert Morris Associates, said lenders will use the data to enhance risk-modeling systems. By comparing aggregate industry numbers with their own experiences, banks can gauge current and future risk, she said. Problem loans as a percentage of total loans to a certain sector were highest in wholesale and retail trade; the services business, particularly health care; and manufacturing. The biggest jumps in the percentages of troubled loans were in oil and gas, financial services, and service industries, especially health care, according to the data. When examiners give adverse ratings they are classifying loans as "substandard," "doubtful," or "loss." Loans receiving "special mention" are judged to have potential weaknesses.

Rob Garver contributed to this story.

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