Fitch Issues Mixed Prognosis For CRE Banks in Midst of Pandemic
Fitch's report shows the COVID-19 pandemic played a role in the banks' outcomes.
The financial prognosis for the banking industry during the current COVID-19 pandemic is unsteady, but there are bright spots.
That is the word from Christopher Wolfe, managing director and head of North American Banks at Fitch Ratings, one of the country’s top three credit rating agencies.
Fitch Ratings found effects of the coronavirus have played a major role in bank instability, Wolfe tells GlobeSt.com.
In particular, banks that lend to commercial real estate have been affected by the spread of COVID-19.
The credit rating agency says it “views construction lending as the US bank category with the highest inherent risk of all commercial loan types as evidenced by the loss history relative to other commercial loan types.”
The Fitch report continues: “The top 10 banks that are most exposed to commercial real estate construction lending have built their reserves by a median of 50% since the fourth quarter of 2019. This is still lower than the reserve build of the largest US banks.” Fitch said banks with less than $10 billion in assets were not include in the analysis.
Prior to the onset of COVID-19 in March in this country, Wolfe said, 85% of bank ratings were stable. Since the pandemic, he said, that number has spiraled down to 65% of bank ratings that are on a negative outlook.
“We are seeing some financial performances that are weak, a lot weaker then they have been over the last few years,” Wolfe said. “We take a view on what economic outlooks will be and it’s far more severe and worse than we anticipated.”
COVID, Wolfe said, “has had a major effect on banking and the pandemic is not over yet. This will all effect how people interact with banks moving forward. You’ve had a severe economic shock that is still occurring in the economy, which is certainly going to show up in weaker loan and asset quality performances.”
There is room for optimism, though, Wolfe said.
“The bright spot is that people learned their lessons from the 2008 crisis,” Wolfe said. “Unlike the global financial crisis of 2008, the monetary and fiscal response of the Federal Reserve and the US Congress have been different in that they’ve responded very rapidly and forcefully to our current crisis and that’s a good sign. In 2008, it was months and months and months before you saw any real action, while, this time, it was almost immediate.”
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