Fitch Eyes Banks' CRE; Deterioration Could Exceed Expectations

Fitch Ratings is looking more closely at U.S. banks' commercial real estate exposure, noting that current indicators suggest continued deterioration could surpass its current expectations. The rating agency said it is currently gathering more specific information from the more than 75 bank and thrift institutions it rates on those institutions' CRE exposure. Fitch currently assigns negative outlooks to nearly half of the U.S. bank and thrift institutions it rates and has noted that "a major concern contributing to these negative outlooks is the potential for further deterioration in the institutions' loan portfolios with a specific focus on CRE exposures." While CRE loans, excluding the more problematic construction and development portfolios, represent more than 125% of total equity for the 20 largest banks rated by Fitch, the risk is even higher for banks with less than $20 billion in assets, as average CRE exposure represents more than 200% of total equity for these institutions," Fitch said. "The analysis of the additional data will assist in highlighting which, if any, institution's portfolios are particularly vulnerable to an extended period of stress," the rating agency said.