Many U.S. regional lenders may have to consider selling off commercial real estate (CRE) loans at a steep discount after breaching key regulatory thresholds for exposure to the troubled sector, according to new data and market sources.
Their tightening comes as many real estate borrowers face challenges making interest payments in a rising interest rate environment, while office use has declined and property values have decreased on recession concerns.
Banks whose CRE or construction loan holdings exceed 300% and 100% of their total capital, respectively, should expect to receive greater regulatory scrutiny, according to 2006 guidance from the Federal Deposit Insurance Corporation and other regulators. Some 30% of banks with $1 billion to $10 billion in assets had exceeded at least one ratio, while 23% of banks with assets of $10 billion to $50 billion exceeded at least one ratio.about CRE exposure, the new Trepp data underscores how acute and widespread the problem is across the banking sector.
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