Banks have continued making loan modifications for the third quarter, according to a Moody’s Ratings report. The median percentage of CRE loans to non-owner occupied (NOO) borrowers — measured in percentages of the total collective dollar amounts — rose 65 basis points of total NOO CRE loans for the last nine months.
The Federal Reserve’s rate cuts so far offered “little opportunity for refinancing at reduced rates,” so extensions would seem likely part of the ongoing attempt to keep loans from sliding into delinquency and banks from having to write them down, Moody's said.
Stephen Lynch, vice president and senior credit officer at Moody’s Ratings, told GlobeSt.com that the firm examined about 65 rated banks in the first round of the reporting, however, only 39 banks disclosed data. The banks did not generally disclose the number of loans they had. “When it was, it was an issuer saying X number of loans were modified when X was a small number,” Lynch said.
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They reviewed financial reporting disclosures for US banks that they rate with more than $100 billion in assets and any bank with CRE to tangible common equity above 150%. The data was for the first nine months of 2024 through September 30.
It was a 35% increase from the 48 basis points in the six months ending June 30, 2024. However, last year the jump was a higher percentage, though not a higher total. In 2023, the change from the six-month to nine-month period was a 50% increase from 18 basis points to 36 basis points.
There were some significant differences in change between banks with more than $100 billion in assets. Those with between $100 billion and $700 billion, and banks with less than $100 billion showed some disparity. The median percentage for the middle group was a 61% increase from 120 basis points to 193 basis points. For the largest banks, it was a 14% increase from 69 to 79 basis points. And for the smallest, it was a 217% spike from 10 to 32 basis points.
The higher increase among the smallest banks might seem concerning, but they also had the smallest percentage of modifications. The largest banks had the smallest increase and the middle largest final percentage, although chances are they might have included the largest loans. The middle-sized banks, though, by far had the biggest set of modifications at 193 basis points and the second largest percentage increase.
In Lynch’s view: “It is something to watch and to take into account relative to other rating factors we consider — capital, profitability, asset quality, funding and liquidity.”
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