A rising interest rate scenario may contribute to weakening C&I credit quality in the future, with smaller banks potentially facing greater risks as a result of their thrust into this relatively newer loan space. The threat may not be imminent as Fitch only expects rates to rise modestly through the end of 2015.
We attribute some of C&I's strong credit performance to the low absolute level of interest rates, which may be enabling some more marginal borrowers to remain current.
Quarterly Fed survey data on C&I loans has been indicating steadily easing terms since the end of 2010, raising some caution in our prior C&I commentaries. Furthermore, high loan growth can indicate that banks are becoming price- or term-takers, which can indicate overly aggressive behavior or elevated competition. We see smaller regional and community banks as being more vulnerable to this concern.
Yet at this stage of the current credit cycle, net charge-offs of C&I loans across the
C&I loan balances rose by
With assets up to
Future C&I loan performance will likely depend on individual underwriting standards, as well as the health of the general economy, which tends to impact C&I loan quality greatly.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
70 W. Madison
Source: Fitch Ratings
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