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Bad CRE Loans Outstrip Loss Reserves at Major Banks
Bad commercial real estate loans have overtaken loss reserves at the biggest U.S. banks after a sharp increase in late payments linked to offices, shopping centers and other properties, the Financial Times reported, citing FDIC data. The average reserves at JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, Goldman Sachs and Morgan Stanley have fallen from $1.60 to 90 cents for every dollar of CRE debt on which a borrower is at least 30 days late.
The sharp deterioration occurred over the past year after delinquent commercial property debt for the six big banks nearly tripled to $9.3 billion, reported FT.
Michael Barr, vice chair for supervision at the Federal Reserve, said in a speech Friday that regulators “have been closely focused on banks’ CRE lending.” That includes “how they are reporting their risk” internally and whether they “provision appropriately and have sufficient capital to buffer against potential future CRE loan losses.”
FT reported that across the wider U.S. banking sector, the value of delinquent loans tied to offices, malls, apartments and other commercial properties more than doubled in 2023 to $24.3 billion, up from $11.2 billion in 2022.
U.S. banks now hold $1.40 in reserves for every dollar of delinquent commercial real estate loans, down from $2.20 a year ago, according to the FDIC data. It’s the lowest cover that banks have had to absorb potential CRE loan losses in more than seven years.
- ◦Financing
