Nearly 3,000 small U.S. banks could be forced to dramatically curtail their lending because of losses on commercial real-estate loans, a congressional inquiry concluded.(…)
“The banks that are on the front lines of small-business lending are about to get hit by a tidal wave of commercial-loan failures,” said Elizabeth Warren, a law professor at Harvard University who heads the TARP oversight panel.(…)
Of the roughly 8,100 U.S. banks, some 2,988 small institutions have problematic exposure to commercial real-estate loans, according to the oversight panel’s report. That means their level of commercial real-estate loans is at least 300% of total capital or their construction and land loans exceed 100% of total capital.(…)
Few experts are predicting a resurgence in commercial real estate anytime soon. Commercial real-estate debt in the U.S. totals about $3.4 trillion. Of that amount, banks hold $1.5 trillion, or 45%. Bondholders who own pools of real-estate debt hold $708 billion, or 21%.
Over the past decade, many banks increasingly relied on property loans for profits. According to the oversight panel, as of 2003, banks with $100 million to $1 billion in assets had commercial real-estate portfolios equal to 156% of their total risk-based capital. By the third quarter of 2006, that ratio had increased to 318%. The concentrations have been especially worrisome in the western and southeastern U.S., the panel’s report said.(…)
From 2010 to 2014, some $1.4 trillion in commercial real-estate loans is coming due. But for nearly half of those loans, the borrower’s debt is more than the property value, the panel said.(…)