Ratings agency Moody’s placed ratings of six U.S regional banks on review for downgrade on Thursday due to their substantial exposure to commercial real estate loans.
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These banks have substantial concentration in CRE loans, which are facing asset quality and profitability pressures with higher-for-longer interest rates raising longstanding risks, especially during cycle downturns, Moody’s said in separate statements.
During the low-interest-rate environment prior to the onset of the Federal Reserve’s rate-hike cycle, many regional banks chose to build and maintain substantial concentrations in CRE, which is a volatile asset class, Moody’s said.
Regional banks with exposure to the beleaguered commercial real estate sector have come under investor scrutiny after New York Community Bancorp’s recent turmoil.
Non-performing CRE loans as a percentage of U.S. banks’ portfolios doubled to 0.81% by the end of 2023 from a year earlier, the International Monetary Fund said in its semi-annual Global Financial Stability report in April.
Banks have continued to increase provisions for bad CRE loans, the IMF noted in its report.
