Overdue Office Loans Are New Pain Point for Banks in FDIC Report – Yahoo Finance

1 minute, 51 seconds Read

(Bloomberg) — Bank profits fell in the third quarter despite the booming economy, according to data from a top US regulator, which flagged risks that include inflation, rising interest rates, geopolitics and a shaky office real estate market.

Most Read from Bloomberg

Buy/sell, rent/lease residential &
commercials real estate properties.

The Federal Deposit Insurance Corp. said Wednesday in its Quarterly Banking Profile that the 4,614 banks it supervises are financially strong as a group, and profits are still historically high, even with the period’s 3.4% decrease from the prior quarter to $68.4 billion. The agency’s watch list of the weakest lenders rose by one to 44.

“The banking industry continued to show resilience,” Martin Gruenberg, the head of the agency, said in a statement. Still, he added that the industry faces significant downside risks that could affect credit quality, profits and liquidity. Regulators and analysts have warned about potential deterioration in commercial real estate loans, and Gruenberg said those concerns are beginning to materialize.

Banks have largely moved past the turmoil of last March that led to the collapse of four regional lenders, and the FDIC said asset quality metrics remain favorable. But the economy’s brisk 5.2% growth in the third quarter didn’t translate into a similar burst for profits, especially at community banks, where net income dropped 4.8%.

Read more: US Economy Grew 5.2% in Third Quarter, More Than First Estimated

Gruenberg singled out office property for attention, with overdue loans for commercial real estate buildings that aren’t owner-occupied jumping 36% to the highest level since 2014.

Severe Crash Is Coming for US Office Properties: MLIV Pulse

Unrealized losses on securities, the focus of intense concern during the March crunch, increased 20% to $76.5 billion from $12.8 billion in the prior quarter and 4.9% from the prior year, leaving the sum back near its recent highs. The category mostly reflects bonds bought when interest rates were closer to zero, and whose value has since plunged. This could be a problem if banks had to sell those bonds to cover sudden, massive withdrawals, but lenders have said they expect they can hold those securities until they mature.

The agency’s bedrock deposit insurance fund increased to $119.3 billion in the third quarter, a $2.4 billion lift that stemmed from increased assessments paid by banks.

Most Read from Bloomberg Businessweek

©2023 Bloomberg L.P.

This post was originally published on 3rd party site mentioned on the title of this site

Similar Posts

    Your Interest
    Your Interest List is emptyReturn to Buying