Anjali Sharma
GG News Bureau
NEW YORK, 8th Feb. According to news media reports on Wednesday the US banks hold about $2.7 trillion in commercial real-estate loans.
According to Goldman Sachs economists the majority about 80 per cent is held by smaller, regional banks the ones that the US government hasn’t classified as “too big to fail”.
According to data firm Trepp much of that debt is about to mature and in a troubled market, regional banks might have problems collecting on those loans.
Over $2.2 trillion will come due between now and the end of 2027.
Fears were exacerbated last week when New York Community Bancorp reported a surprise loss of $252 million last quarter compared to a $172 million profit in the fourth quarter of 2022.
The company reported $552 million in loan losses, a significant increase from $62 million recorded in the prior quarter. The increase was driven partly by expected losses on commercial real-estate loans, it said.
Shares of the bank have plummeted 50 per cent over the past five trading sessions.
US Regional Bank index dropped by about 7 per cent over the same period.
It’s been nearly a year since the collapse of three US regional lenders that left financial institutions and regulators scrambling to prevent the spread of a banking crisis.
Today, investors are worried they’re back on familiar territory. But while the last crisis was all about interest rate risk, this one revolves around the $20 trillion commercial real-estate market.
The decades of growth bolstered by low interest rates and easy credit, commercial real-estate has hit a wall.
Office and retail property valuations have been falling since the pandemic changed where people live and work and how they shop.
US Fed’s efforts to fight inflation by raising interest rates have also hurt the credit-dependent industry, the media reports stated.
