US banks added to credit reserves in the first half of 2024 to protect against further losses from commercial real estate and some consumer loans, the Federal Reserve said in its twice-yearly supervision and regulation report Friday.
The delinquency rate for CRE loans has increased to its highest level in a decade, the Fed noted, jumping to 11% at the large banks in the second quarter of 2024.
“The deterioration in CRE loans has so far been mostly concentrated at large banks,” the report said. “However the delinquency rate for CRE loans held by smaller banks also increased in the first half of 2024.”
Smaller banks generally hold a higher share of their assets in CRE loans compared to large banks.
Most banks continue to report capital levels above what regulation requires, and liquidity and funding conditions remain stable, the report said.
Banks have been trying to alleviate concern by US bank regulators, including the Fed, that they are poorly prepared for deep turmoil and deterioration in the commercial real estate market.
About a year ago, officials asked lenders to work with credit-worthy borrowers that are facing stress in the sector. Property owners have come under pressure as borrowing costs have soared.
Fed Chair Jerome Powell and other officials have said the US banking system is strong enough to cope with the CRE risks.
Source: bloomberg.com
