Commercial borrowers are leaning heavily on their credit lines, according to data released last week by the Risk Management Association and Automated Financial Systems Inc. Fourth quarter statistics showed the composite average utilization rate under lines of credit jumped to 47.5 percent, up 18.6 percent from a year earlier. “The percentage of middle market loans on nonaccrual rose for the eighth consecutive quarter, and is now 1.5 percent of total outstanding balances,” the report states, a year-over-year increase of 127 percent. Loans 30-89 days past due doubled to 1.25 percent in the same period.
“It’s safe to say that with the Lehman event, conditions really changed,” says Risk Management Association president and CEO Kevin Blakely. Banks have been anticipating this weakness, and have been adding to their loan loss reserves since early 2008. Reserve building “comes in three waves,” notes Blakely. “First there’s the optimistic wave, then the wave when banks realize they really have some problems.” During the third wave, banks see a turnaround but continue to build reserves “as a clean-up.”