Citi analysts said Friday that although commercial real estate loan delinquencies will rise, the $39 billion that banks have already set aside to cover losses will be more than enough to cover the systemic impact.
“The bottom line is that while we expect commercial real estate delinquency rates to rise and losses to accrue gradually over the next few years, the level of losses we expect is likely to be lower than that expected in a normal economic downturn,” Citi economic analysts said. It's almost in line with that.”
Citi analysts reiterated their Buy rating on Citizens Financial Group.
CFG
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I upgraded from Pending earlier this month.
M&T Bank Co., Ltd.
MTB
Citi analysts stressed that citizens should “take advantage of our view that fear is now overdone.”
On the other hand, the local bank Popular Co., Ltd.
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,
Comerica Co., Ltd.
CMA
,
First Horizon Co., Ltd.
FHN
and key corps
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Analysts said it would benefit from limited office exposure.
In Citi's research, Global Multi-Asset Strategy, CRE: The $3 Trillion Banking Problemsaid the bank's losses would be significantly lower than those recorded during the global financial crisis, which affected hundreds of financial institutions.
Analyst Jeffrey Berenbaum said banks are setting aside $39 billion, or 1.4% of total commercial real estate loans, for potential related losses.
The delinquency rate for the office subsector is currently 1.5%, while the delinquency rate for the multifamily housing sector is 0.4%. At this level, assuming a 50% recovery rate, banks could lose $5.5 billion on loans.
“Even if delinquency rates rose to the 6% levels seen during the global financial crisis, implying losses of up to $35 billion, reserves would still be sufficient,” he said.
During the real estate crisis of the 1990s, commercial real estate depreciation rates peaked at 2%. The office sector, which is affected by employees working from home, is estimated to account for 20% of the total commercial real estate business.
“Despite recent revelations about New York Community Bank’s commercial real estate (CRE) exposure, the market remains somewhat optimistic about the potential impact from CRE on the broader banking system, and in our view , the fundamentals appear to be reasonably consistent with market valuations,'' said Citi analyst Nathan Sheets.
He said large money centers and regional banks are generally writing off CRE-related debt or building up reserves for loans that are expected to deteriorate.
“Many small and medium-sized banks, particularly those exposed to CRE, are less aggressive in provisioning for exposure, but their loans tend to have lower risk characteristics, such as smaller balances and suburban locations. ” said Sheets.
Citi analysts reiterated their Buy rating on Citizens Financial Group.
CFG
,
I upgraded from Pending earlier this month.
Also read: New York Community Bancorp led large regional banks in increasing loan loss reserves as institutions braced for a potential economic downturn.
