Commercial real estate portfolios have held up better than expected during the pandemic. But rising delinquencies and fears of a delayed economic recovery are renewing questions about credit quality.
While banks are reporting steady declines in deferrals, hard-hit borrowers such as airlines, commercial real estate developers and hotel operators will almost certainly struggle to regain their footing.
The agency’s second in-depth study of the community banking sector pointed to continued challenges for local institutions from the pandemic and other headwinds, but many smaller banks are reaping the benefits of M&A and holding their own against larger competitors in key lending categories.
The economic fallout from COVID-19 has highlighted systemic concerns about commercial real estate exposure, business debt and short-term wholesale funding, the Financial Stability Oversight Council said in an annual report.
While national banks have remained strong during the pandemic, they are still navigating risks from a murky credit environment and other potential warnings signs, according to a report by the Office of the Comptroller of the Currency.
Many of the Buffalo, N.Y., bank’s commercial loans have exited forbearance granted in the early days of the pandemic — except hospitality and retail, which were given longer dispensation.
More than a third fear the fallout from the coronavirus pandemic could drag into 2022 or later, and they are most worried about commercial real estate loans, according to a Promontory Interfinancial Network survey.
No two properties are alike, so lenders are tailoring their approaches for modification, forbearance and repayment of loans to a sector devastated by the pandemic.
Many commercial property owners are locked out of existing coronavirus relief by financing terms that bar them from taking new loans. Under a House bill, they would receive government-backed equity investments.
