OCC Survey Showed Banks’ Underwriting Standards Largely Unchanged

June 29 - The Office of the Comptroller of the Currency’s 18th Annual Survey of Credit Underwriting Practices shows that underwriting standards remained largely unchanged from last year, although some easing was noted in select commercial and retail products.

Banks continued to react to changing economic conditions, competition and ongoing portfolio risk. Examiners reported banks that eased standards generally did so in response to changes in economic outlook, competitive environment, and the bank’s risk appetite including a desire for growth. Large banks, as a group, reported the highest share of eased underwriting standards. Loan portfolios that experienced the most underwriting easing included indirect consumer, credit cards, large corporate, asset-based lending and leveraged loans. Loan portfolios that experienced the most underwriting tightening included high loan-to-value home equity, international, construction and residential real estate loans.

“This year’s survey showed the continued normal progression toward stable or easing underwriting standards as the economic environment stabilizes,” said John Lyons, senior deputy comptroller and chief national bank examiner. He went on to indicate “examiners will be focusing on underwriting standards as banks ease standards to improve margins and compete for limited good loans.”

Banks should ensure appropriate attention to underwriting, loan structures and loan administration as competition and the anxiety for earnings can lead to heightened risk. This is especially notable for loan products that have already seen easing such as leveraged lending, asset-based lending, indirect consumer lending and credit cards.

The survey is a compilation of examiner observations and assessments of credit underwriting standards. The 2012 survey included 87 of the largest national banks and federal savings associations and covers the 12-month period ending Feb. 29, 2012. The aggregate total of loans was $4.6 trillion as of December 31, 2011, which represents approximately 91 percent of total loans in the national bank and federal savings association system.

Click here to view the survey results.