In an environment of low interest rates and slow economic growth, credit risk is on the rise once again among U.S. lenders, according to a new report from U.S. bank regulators.
The U.S. Office of the Comptroller of Currency (OCC) released a report today indicating that “credit risk is building” once again, “following a period of improving credit quality and problem loan clean-up.” It also notes that heightened competition is leading to a loosening of underwriting standards.
“The prolonged low interest-rate environment continues to lay the foundation for future vulnerability,” the OCC warns. It adds that banks “could face significant earnings pressure and potential capital erosion” when interest rates start to rise, depending on the severity and timing of interest-rate moves.
Many banks, the OCC says, are examining their business models and risk appetites in an effort to find ways to generate returns. The OCC, therefore, will focus on banks’ strategies and new product planning to ensure that they are following appropriate risk-management processes, it says.
The report also notes that cyber threats are continuing to evolve, and that these risks demand greater attention and adequate resources in order to mitigate that threat.