enjoying some of the lowest loan losses they've seen in years. But even with portfolio quality zooming to new highs, the buzz at the fall conference of Robert Morris Associates, the trade group of commercial loan officers, was that big problems could be just over the horizon. Indeed, many attendees said they see signs of an impending implosion in consumer loan portfolios, just as questionable lending is on the rise in the asset-backed and commercial real estate markets. "If you extrapolate a trend ... there are major problems," said Dorothy M. Horvath, second vice president of the trade group and chief credit officer of National City Bank in Columbus, Ohio. Loan problems are minimal now, she said in an interview, because the economy is still relatively healthy and many of the loans on banks' books were made a few years ago, when lending standards were tight by historical standards. "We all feel that if you stop the projector today, you would not have a repeat of '91 and '92," when banks suffered huge losses, Ms. Horvath said. But she added that Robert Morris Associates sees dangerous signs. Too many loans are being made that will go bad during the next economic downturn, she said, and these loans are creeping back into bank portfolios. Banks appear to be facing an especially big risk in their consumer lending, said Richard A. Clarke, a consultant in Winchester, Mass., who specializes in commercial lending and loan workouts. Mr. Clarke said it was clear that increased competition is driving many lenders to be too aggressive in promoting consumer credits. For example, he said that too many people are getting several pre-approved credit card offers at the same time. The risk is that people will accept the offers, charge their cards to the limit, and then default, leaving lenders with big losses. Lenders, in such a scenario, are taking on more risk than expected since credit approvals are made before it is known that a consumer has accepted multiple credit cards. "The smart money says that the next problem is going to be with consumer lending," Mr. Clarke said. Samuel Eichenfield, chairman and chief executive of the Finova Group, a Phoenix-based commercial finance company, also warned of a rise in risky lending. "I think what we have seen in the marketplace is over- aggressiveness," Mr. Eichenfeld said. He added that many lenders are being too loose in credit standards for commercial real estate, while also being too lax with asset-backed loans where inventory or accounts receivables are used as collateral. In commercial real estate, perhaps the clearest sign of the "beginnings of another time bomb" is that loans are being made on "spec," rather than the more conservative and desirable "cash-flow" method, he explained. Meanwhile, in the asset-backed market many banks are charging too little and failing to monitor borrowers' inventories and receivables closely enough. When this happens, lenders risk extending too much credit to companies that are suffering a rapid decline in inventories and receivables. Finova, which has assets of $6.8 billion, has responded by halting commercial real estate lending and tightening credit standards for asset- backed loans, Mr. Eichenfeld said.

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