As tough as the corporate credit deterioration has been on bank loan quality, it is not as severe as it was a decade ago, according to a recent report by Moody's Investors Service. John Lonski, chief economist at the ratings agency, noted that bad loans at banks are rising, with non-performing assets at the 19 major banks included in a first quarter sample, rising to $24.9 billion at the end of March, from $22.5 billion at the end of 2000. One bank, that Lonski declined to name, plans to exit from lending to the telecommunications, energy and mining sectors, further contributing to a rise in NPA's relative to outstanding loans. As a percentage of loan losses, NPAs jumped from 54% in the first quarter of 2000 to 70.2% at the end of March.
Still, the report is accompanied by a proviso of "don't worry, it's not as bad as the early 90s." "It's healthy to show caution," Lonski said, but it's important that people don't get carried away. There is a low rate of inflation, and a budget surplus that provides room for maneuver. Energy and natural gas sectors are doing well. If you have a high-yield bond issuance, it could act as a way to refinance in the loan mart, he added. Five billion in high-yield bonds have been issued this month, Lonski added. The problem relative to the early 90s is incomparable, when a credit crunch led to Bank of America's rating to fall to junk bond status.