NEW YORK - (Business Wire) Regional mid-size and smaller banking institutions have greater credit risks associated with declines in commercial real estate portfolio performance with downgrades likely for some of these banks, according to a Fitch Ratings review. For the U.S. banking sector overall, CRE exposure remains a sizable but generally manageable risk, particularly among the largest financial institutions. As of June 30, 2009, U.S. banks had approximately $1.1 trillion of CRE loans, roughly half of which were held by banks in Fitch's rated universe. Fitch estimates that 10% of this balance is exposed to potential impairment. These figures do not include the approximately $500 billion in construction loans, including residential construction, that are subject to even greater risk. For the 36 banks rated by Fitch with less than $20 billion in assets, CRE exposures represent more than one-quarter of total loans outstanding. None of the four largest US-based banks (assets in excess of $1 trillion) have CRE in excess of 10% of total loans.
'The potential for further deteriorations in commercial real estate portfolios is a major contributor to Fitch's negative outlook for the banking sector,' said Thomas Abruzzo, Managing Director and co-head of Fitch's North America Financial Institutions group. 'Loan losses are increasingly likely given the expectation for ongoing declines in commercial real estate markets.'
Fitch expects that rating actions taken as a result of its CRE review will be concentrated among the smaller and mid-size banks. The magnitude of negative rating actions is likely to be no more than a notch, but the possibility of more significant downgrades is quite possible among the banks with the greatest exposure.
In August 2009, Fitch initiated an expanded review of CRE exposures for banking and thrift institutions in Fitch's ratings portfolio, beginning with a survey aimed at obtaining detailed data on the CRE portfolios of companies rated by Fitch. The information gained from the CRE survey provides a framework for Fitch to examine specific areas of concern across the banking industry, conduct more uniform stress tests and assess if rating actions are needed to reflect what will likely be continued deterioration in asset quality.
The full report 'U.S. Bank CRE Exposure Review' is available on the Fitch Ratings' web site at 'www.fitchratings.com.' The report provides additional details regarding Fitch's survey methodology and approach to stress tests related to CRE exposure.
Additional information is available at 'www.fitchratings.com'.
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Fitch Ratings
Thomas Abruzzo, 212-908-0793, New York
James Moss, 312-368-3213, Chicago
or
Media Relations:
Brian Bertsch, 212-908-0549, New York
Email: brian.bertsch@fitchratings.com
