To begin with, CRE loans are occupying a large portion of the U.S. banking sector's entire portfolio, standing at a significant 10%. CRE loans are also regarded as the most widely held loan type among banks, which is confirmed by the fact that the majority of banks have positive CRE loans.
Figure 1 illustrates the average CRE concentration for banks based on their size, as a share of loans.
Mid-sized banks are hovering at a Coverage Ratio of 300%, while the biggest banks maintain a modest 50%. This disparity seems to strengthen the argument that community banks are the primary issue.
The occurrence of NPLs is increasing across various bank portfolios, and the big banks are not excluded from this trend.
The following figure presents the average CRE NPL percentage in CRE loans, categorized by the same bank sizes as previously analyzed.
As the largest component of commercial real estate loans, the significant spikes in NPLs among big banks will undoubtedly worsen credit conditions in the already troubled CRE market.
The issues with CRE loans have been circulating for some time, but the narrative often focuses on community banks.
https://gnseconomics.substack.com/p/cre-concentration-review
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