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Commercial real estate loan delinquencies at US banks rose sharply in the fourth quarter from the prior quarter, amid a challenging macroeconomic environment, declining occupancy rates, and tighter lending standards.
Credits overdue for more than 30 days and those that are in Non-accrual status accounted for 0.65% of CRE loans at the end of the fourth quarter, up from 0.58% for the delinquency rate as of September 30, 2022, an analysis by S&P Global Market Intelligence showed.
However, despite the sequential rise in non-performing loans in the fourth quarter, the CRE loan delinquency rate fell 6 bp year-on-year.
At its last meeting, the Federal Reserve raised concerns about the CRE space given higher interest rates, including high valuations in the commercial real estate markets.
In addition, banks tightened standards for commercial and industrial lending, as well as commercial real estate lending during the third and fourth quarters, according to the Fed’s monetary policy report.
S&P’s intelligence unit found that the number of US banks that exceeded regulatory guidance on CRE loan concentration in the fourth quarter increased to 567 as of December 31, 2022, from 539 at the end of the third quarter and 421 in the fourth quarter of 2021. This marks the seventh consecutive quarterly increase. .
Trustmark National Bank, a unit of Trustmark (TRMK), is the latest major US bank to exceed CRE guidance, with a construction and development loan concentration of 106% as of December 31, 2022.
Meanwhile, Wells Fargo downgraded its rating on commercial mortgage-backed securities from favorable to neutral, as a slowdown in development should pose a risk to commercial lease space. “However, the light issuance on CMBS through the first half of 2023 should support a neutral rating.”
Related tickers include: Starwood Property Trust (STWD), Blackstone Mortgage Trust (BXMT), BrightSpire Capital (BRSP), ACRES Commercial Realty (ACR), Lument Finance Trust (LFT), Ladder Capital (LADR), among others.
Earlier, Blackstone (BX) defaulted on part of a trading book-backed bond in Finland.