Major U.S. banks are facing a concerning trend as bad commercial real estate (CRE) loans have surpassed their loss reserves, according to FDIC data reported by the Financial Times. The rise in late payments for properties such as offices and shopping centers has resulted in a decrease from $1.60 to 90 cents for every dollar of CRE debt that is at least 30 days overdue at JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, Goldman Sachs and Morgan Stanley.
This significant decline has occurred within the past year with delinquent commercial property debt nearly tripling to $9.3 billion among these six major banks alone. In response to this alarming development, Michael Barr – vice chair for supervision at the Federal Reserve – emphasized during a recent speech that regulators have been closely monitoring banks’ CRE lending practices including risk reporting and adequate provisioning of capital against potential future losses.
The overall U.S banking sector also saw an increase in delinquent loans tied to various types of commercial properties such as offices malls and apartments which more than doubled from $11.2 billion in 2022 to $24.3 billion in 2023 according FT’s report.
Accordingly,the average reserves held by U.S.banks now stand at only$1 .40 per dollarofdelinquentcommercialrealestateloanscomparedto$2 .20ayearagoaccordingtoFDICdata.ThisisthelowestcoverthatbankshavehadtosustainpotentialCREloanlossesintomorethansevenyears.
