Big Banks Are Still Shedding Real Estate Debt
Big banks aren’t letting a new war stop them from cleaning up their commercial real estate debt portfolios.
Three of the country’s largest banks, led by Bank of America, continued to whittle away at their nonperforming commercial real estate debt holdings in the first quarter. Despite war with Iran pushing inflation higher, dragging consumer sentiment to a record low and injecting ever more uncertainty into markets, U.S. financial institutions are successfully rebalancing their loan books.
Bank of America’s volume of nonperforming commercial loans, or debt that is at least 90 days past due, fell 44% year-over-year to $1.2B at the end of the first quarter, the company reported on Wednesday. The bank, which has a $388B market capitalization, also cut its reserves for credit losses by $200M in the first quarter to $1.3B, citing the quality of its portfolio.
“We have a more conservative approach to our client selection and the type of risk that we take,” Chief Financial Officer Alastair Borthwick said on the firm’s first-quarter earnings call. “We don't think we're any different than other people. We just think we've got a higher-quality client base and a higher-quality loan portfolio.”
PNC’s nonperforming loan portfolio shrank 26% year-over-year to $630M at the end of March, but that was up from $574M at the end of 2025. Wells Fargo reported a 2.6% decline in its nonperforming CRE loan portfolio to $3.7B, or 2.8% of all of its commercial real estate loans, at the end of Q1.
PNC Director of Investor Relations Bryan Gill said the improvement in its commercial real estate book had been a focus for the firm.
“We did reach the inflection point on our commercial real estate balances, which we called for in the first quarter of 2026,” he said on the firm’s earnings call Wednesday. “That’s been a headwind for a number of quarters. We’ve reached that inflection point as we expected.”
Banks and other lenders reacted to the pandemic-era run-up in interest rates by pushing out loan maturity dates in a practice that was so widespread it became known as extend-and-pretend. But by the middle of 2025, banks were working to move problem loans off their books.
Banks are writing down debt, taking losses and recycling that liquidity back into real estate markets after more than a year eschewing the sector. Debt issuance from banks was up 85% in November compared to 2024 and was roughly in line with the pace of underwriting in 2019.
The debt market has become more crowded — private credit filled the gap from banks’ absence in the market at higher borrowing rates — and is competitive for performing properties despite macroeconomic headwinds.
The Federal Reserve has also proposed easing capital requirements for banks in a move that would unlock billions in liquidity for new lending, although banks could choose to deploy the capital into other sectors.
Bank of America CEO Brian Moynihan said on the firm’s earnings call that the proposed changes are likely to reduce the bank's capital requirements.
“The public comment period concludes in mid-June, and we look forward to the finalization of the rules,” he said.
