NY Fed says banks obscuring commercial real estate risks by extending loan terms
NY Fed warns stressed banks obscuring commercial real estate issues
NY Fed: Troubled banks extending commercial real estate terms
NY Fed: Extended troubled CRE loans could quickly become broader problem
By Michael S. Derby
NEW YORK, Oct 23 (Reuters) -Banks have been tweaking the terms of commercial real estate mortgages to obscure losses, and in delaying the day of reckoning, are increasing risks to the broader financial system, a paper released Wednesday by the Federal Reserve Bank of New York said.
The commercial real estate sector, or CRE, has been under heavy pressure from the pandemic and its aftershocks. Lockdowns and the widespread rise of remote working has reduced the need for office buildings and similar structures, and thus far, the sector has shown few signs ofrecovery. On top of that aggressive Fed rate rises between the spring of 2022 and July 2023 further pressured banks.
“Banks ‘extended-and-pretended’ their impaired CRE mortgages in the post-pandemic period to avoid writing off their capital, leading to credit misallocation and a buildup of financial fragility,” the study’s authors wrote, adding problems associated with this lending could arise quickly.
Fed officials have been bracing for some level of manageable trouble among the banks that do CRE loans but have broadly argued that whatever issues arise will likely be modest, concentrated in smaller banks and slow moving, as financial institutions navigate the troubled landscape.
And yet, as bad as the pressure has been on the sector, the issue thus far has failed to generate broader dislocations. The report noted “nonperforming loans and net charge-offs have remained low by historical standards, especially for weakly capitalized banks.
The paper notes that CRE mortgages are mainly issued and held by banks, with these firms accounting for 50.7% of the $5.8 trillion CRE loan sector as of the final quarter of 2023.
Banks with “weaker” marked-to-market capital levels tied to losses in their securities holdings are the primary vector for the CRE mortgage extensions. The firms have since the first quarter of 2022 “pretended that such credit provision was not as distressed to avoid further depleting their capital,” the authors said.
Extending the maturity of these troubled loans has made it harder to make new CRE loans and increased the chances that troubled CRE mortgages will face an imminent reckoning, noting “the maturity extensions granted by banks also fueled the volume of CRE mortgages set to mature in the near term--a ‘maturity wall’ with the associated risk of large losses materializing in a short period of time.”
The paper said CRE mortgages from weakly capitalized banks have a 0.2 percentage point higher probability of getting the terms extended versus better capitalized banks.
The Fed rate cuts that kicked off in September and are projected to continue could however bring some relief to CRE lending.
On Monday, Moody’s lifted its outlook on the banking sector to stable from negative, in part of because “stabilizing asset quality for banks due to rate cuts, especially for CRE loans.”
Meanwhile, a report from Goldman Sachs at the end of September noted “there remains little evidence of a credit crunch in the CRE market” even as it is clear lending is growing at a much slower pace.
Reporting by Michael S. Derby; editing by Diane Craft
免责声明: XM Group仅提供在线交易平台的执行服务和访问权限，并允许个人查看和/或使用网站或网站所提供的内容，但无意进行任何更改或扩展，也不会更改或扩展其服务和访问权限。所有访问和使用权限，将受下列条款与条例约束：(i) 条款与条例；(ii) 风险提示；以及(iii) 完整免责声明。请注意，网站所提供的所有讯息，仅限一般资讯用途。此外，XM所有在线交易平台的内容并不构成，也不能被用于任何未经授权的金融市场交易邀约和/或邀请。金融市场交易对于您的投资资本含有重大风险。
所有在线交易平台所发布的资料，仅适用于教育/资讯类用途，不包含也不应被视为用于金融、投资税或交易相关咨询和建议，或是交易价格纪录，或是任何金融商品或非应邀途径的金融相关优惠的交易邀约或邀请。
本网站上由XM和第三方供应商所提供的所有内容，包括意见、新闻、研究、分析、价格、其他资讯和第三方网站链接，皆保持不变，并作为一般市场评论所提供，而非投资性建议。所有在线交易平台所发布的资料，仅适用于教育/资讯类用途，不包含也不应被视为适用于金融、投资税或交易相关咨询和建议，或是交易价格纪录，或是任何金融商品或非应邀途径的金融相关优惠的交易邀约或邀请。请确保您已阅读并完全理解，XM非独立投资研究提示和风险提示相关资讯，更多详情请点击 这里。
