CRE Problems Common Thread For Undercapitalized Banks

The shuttering of seven Illinois banks Friday, which came on the heels of concentrated bank closings in California and Florida, seems to indicate that the Federal Deposit Insurance Corp. (FDIC) is addressing problem institutions one region at a time, according to Trepp's daily TreppWire report.

‘Our partners at Foresight’ – an analytics provider acquired by Trepp earlier this year – ‘speculate that if this trend continues, it might be wise to keep an eye on the problem banks in Puerto Rico,’ the report states. ‘There are seven banks in Puerto Rico on the Foresight watch list. Of the seven that were closed in Illinois, all but one were on the Foresight watch list for at least a year.’

In the report, Trepp notes that of the 2,155 banks that have reported financials for the first quarter, 14 are considered undercapitalized, significantly undercapitalized or critically undercapitalized. Two of these banks have been seized recently.

The common thread among many of the undercapitalized banks is a high concentration of commercial real estate loans. The loans comprise a "disproportionately high percentage" of the banks' nonperforming loans, Trepp says.

On average, 51% of the banks' nonperforming assets were due to soured commercial real estate loans. In all but two of the cases, the percentage was above 35%, the company adds.



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