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Mid-Sized Banks Bear Brunt of Loan Risk

NEW YORK CITY-Smaller banks could lose up to 24% on their commercial real estate loans as fundamentals continue declining, says a Fitch Ratings report.

By Paul Bubny | Updated on November 17, 2009

NEW YORK CITY—Mid-sized and small banks face greater credit risks from their commercial real estate exposure than does the US banking sector as a whole, Fitch Ratings says in a new report. Titled “US Bank CRE Exposure Review,” the report comes as the ratings agency notes monthly rises of 21 and 28 basis points, respectively, in CDL and CMBS delinquencies.

Fitch says it expects that ratings actions taken as a result of its review of banks’ commercial real estate exposure will be concentrated among smaller and mid-size banks. “In most cases, rating actions will likely be limited to one notch, but the possibility of more significant downgrades is quite possible among the banks with the greatest exposure,” according to the report.

Based on a balance of $1.1 trillion of commercial real estate loans as of June 30, Fitch says banks could face as much as $140 billion of impairments. For individual banks, this would mean potential losses in the range of 11% and 24% of their total commercial real estate loans, the report says. These figures do not include approximately $500 billion of construction loans, where the risk of impairment is even greater.

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