Strong competition for ‘quality loans’ raises some risk flags, report finds

Competition for quality loans is strong, as evidenced by eased underwriting – something that warrants “continued focus” on underwriting practices to keep an eye on credit risk and lender complacency, the regulator of national banks and federal savings associations said in a report issued Thursday.

In its “Semiannual Risk Perspective for Spring 2018,” the Office of the Comptroller of the Currency (OCC) noted that “competition” is one of four highlights of its report. The other three, the regulator stated, are:

  • Operational risk, which the agency said is elevated as banks adapt business models, transform technology and operating processes, and respond to evolving cyber threats.
  • Compliance risk, which is higher as banks manage money laundering risks and make changes to policies and procedures to comply with amended Bank Secrecy Act (BSA) and consumer protection requirements.
  • Higher market interest rates may eventually lead to higher funding costs for banks, as economic growth increases loan demand and competition for funding pressures banks to raise deposit yields.

The report, OCC said, presents data in five main areas: operating environment, bank performance, special topics in emerging risk, trends in key risks, and supervisory actions. The agency added that it focuses on issues posing threats to the financial institutions it regulates , and is intended as a resource to the industry, examiners, and the public.

OCC Semiannual Risk Perspective for Spring 2018