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DUFF & PHELPS REVIEWS OVERALL CREDIT QUALITY OF BANK INDUSTRY

 CHICAGO, Dec. 2 /PRNewswire/ -- Given the tremendous performance of the banking industry over the last couple of years, the inevitable question is: will it continue? There is considerable interest in the marketplace about the sustainability of this performance and by extension, the future credit direction of the banking industry. Duff & Phelps expects the general improvement to continue but at a somewhat slower pace.
 Recent improvement has been recognized by Duff & Phelps through a series of upgrades which began in early 1992. Since Dec. 31, 1991, Duff & Phelps has made 39 bank holding company upgrades and only two downgrades. However, the upgrades have been largely limited to those companies originally rated "BBB" (Triple-B) or lower. These upgrades mainly reflect balance sheet strengthening as problem loans were reduced, capital ratios improved, and reserves enhanced. These upgrades have resulted in a general lumping for bank holding companies in the Single-A category.
 Additional upgrades are likely to result in even greater concentration of bank holding companies in the Single-A category. Advancement into the Double-A category will be more limited for holding companies but somewhat more forthcoming for subsidiary banks given the rating distinction between the parent and operating subsidiary.
 The last couple of years have been characterized by strengthening in every performance measurement: profitability, asset quality, capitalization, liquidity, etc. This will likely culminate with the industry reporting an all-time earnings record for full year 1993. Further, the banking industry has emerged from the near-crisis situation precipitated by the significant weakening in national real estate markets and is in its strongest financial condition in several decades.
 While the industry has made substantial improvement in its overall financial condition and performance, several challenges remain. These challenges, generally structural in nature, limit the revenue growth opportunities of the industry to some extent, and place the banking industry in a disadvantageous position relative to its unregulated non-bank competitors. Actions taken by the industry, focusing on higher return lines of business, controlling overhead expenses, and implementing more effective loan administration procedures, have positive implications for industry prospects, but the ability to produce a high level of earnings on a consistent basis over the business cycle is still questionable.
 While environmental issues may act as a constraint for industrywide credit improvement into the very high quality rating grades, Duff & Phelps believes a core group of bank holding companies have demonstrated over time an ability to generate high levels of earnings while maintaining a strong financial position. These companies have been assigned ratings in the Double-A category given their strong protection factors. However, broader movement into this rating category is likely and depends on structural changes within the industry, some of which will require legislative action.
 For a copy of a more in-depth discussion about banking industry rating trends, call Renee Kinzie at 312-368-3113.
 -0- 12/2/93
 /CONTACT: Charles J. Orabutt, Jr., CPA, CFA, of Duff & Phelps Credit Rating Co., 312-368-3153/


CO: Duff & Phelps ST: IN: FIN SU: ECO

TW -- NY033 -- 9800 12/02/93 12:07 EST
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Publication:PR Newswire
Date:Dec 2, 1993
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