Problematic Commercial Real Estate Loans Cause The Demise Of 12 Banks In February
Bank failures so far reported in the February month this year were mostly caused by nonperforming loans in the commercial real estate sector, according to the latest estimates furnished by property consultancy firm Trepp.
Those loans dominated the asset portfolios of 12 banks that went under in the second month of 2011, leading to a total of 23 bank failures so far for the first two months of the current year as reported by the Federal Deposit Insurance Corporation (FDIC).
However, FDIC chair Sheila Bleak expressed confidence that despite the seemingly accelerated bank closing during this year’s first quarter, the 157 failures recorded in 2010 would not be exceeded.
Bleak added that even as last year’s bank shutting downs reached levels that were seen as the highest since 1992, the numbers represented the sector’s gradual recovery from the financial crisis that wreak havoc on global economies, with more specific damages on America’s real estate and financial sectors.
With up to 72 percent of commercial real estate loans causing problems on US banks, Trepp said that more than 100 banks are projected to fail by the end of 2011, with most of the problems concentrated on banks located in California, Georgia and Florida.
Trepp added that even if most bank failures were expected to hit many small community banks, problematic loans are seen to be largely caused by CREs, which comprised of some $230 million from the total of $320 nonperforming loans posted in February.
Also, Trepp said that most of those CREs were mainly traced to construction loans and commercial mortgages, with the residential loans representing only a mere 20 percent of the nonperforming balance or roughly $65 million in total worth.
According to the latest report provided by the FDIC, 884 banks have been listed so far as troubled institutions, leaving the federal regulator working hard to balance the country’s deposit insurance funds.
As of the last quarter of 2010, the FDIC said that its financial reserve improved from a deficit of $8 billion to negative $7.4 billion while its contingent reserve loss was sliced from the $21.3 billion posted in 2009 to its latest standing of $17.7 billion.
The FDIC report has declared that the likelihood of a return to positive for the DIF this year is an almost certainty, barring any major glitches that would hit the sector.
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