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Supervisors scare real estate loans – Concern about prices

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Bank supervisors are concerned about loans in the field of commercial and residential real estate and consider them as a reason for a major vulnerability in the risk assessment for the period 2022-2024.

The European Banking Supervision Bulletin, entitled “closely monitoring real estate risk”, notes that bank exposures in the real estate sector are significant, accounting for about 8% of total supervised loans and more than 20%. % of their total corporate loans.

READ ALSO: & nbsp; They put € 1.81 billion in loans

In Cyprus, Slovenia and Estonia, real estate loans are even higher and, according to the ECB bulletin, their relative size is significant, with real estate openings accounting for more than 40% of all corporate loans. loans. In fact, in the chart, Cyprus is the country of the Eurozone with the most loans in the wider real estate sector, with the percentage being over 60%. & Nbsp;

Supervisors consider the real estate sector to be vulnerable due to certain concerns. The pandemic hit real estate markets at the peak of a cycle. At the start of the pandemic, real estate investment confidence indicators fell sharply and market activity fell to half of normal levels. Analysts point out that rising teleworking and e-shopping could lead to structural changes in the office and real estate market, with rents expected to fall in the medium term. This can weaken the financial position of the borrowers and will lead to higher credit losses for the banks that have a high rate of real estate loans. If market prices fall, so will the value of banks' collateral. This means higher loan-to-value ratios and, as a result, may force banks to increase their forecasts to cover credit risk.

There are also concerns that prolonged supply chain problems caused by the pandemic have led to a significant increase in construction costs. Banks with portfolios that have a high level of exposures to real estate under development will therefore be at higher risk. & Nbsp;

The bulletin states that in the EU buildings account for about 40% of energy consumption and 36% of greenhouse gas emissions, and about 35% of its buildings are over 50 years old. As a result, the real estate sector is highly exposed to climate-related transition risk. “Given these risks, it is important for banks to have a strong credit risk management framework to identify and classify borrowers who face problems at an early stage and to mitigate any vulnerabilities in the real estate market,” it said. To investigate how prepared banks are to face risks that may arise in the real estate market, the ECB Banking Supervision conducts a targeted review of a sample of banks with significant real estate exposures. Supervisors will assess climate-related risks as part of this review. Also, based on the European Banking Authority guidelines for lending and monitoring loans, supervisors will review banks' creditworthiness and mortgage lending standards for newly created home mortgages and ask banks to deficiencies.

Source: www.philenews.com

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