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Fifth Third Bank Is Latest To Back Off Office Lending

Fifth Third execs have said no to further office lending for now.

A major Midwest bank with more than $200B in assets is saying no thank you to further office loans.

Fifth Third Bancorp will not pursue further office commercial real estate loans to add to its $1.6B portfolio, CEO Tim Spence said in a June 14 presentation during a Morgan Stanley conference.

The bank's current office loan portfolio represents 1.3% of its total loan holdings, which had a default rate of 0.01% as of the first quarter. But the banking giant that counts more than 1,000 locations is backing off lending to the embattled commercial real estate subsector as interest rates wreak havoc on office building valuations.

Fifth Third is the latest bank to pull back on commercial real estate lending, especially for office. A month ago, First Citizens BancShares took a similar step when Craig Nix, its chief financial officer, announced the Raleigh, North Carolina-based bank would no longer originate new office loans and set aside more money for credit losses on its $1.3B in Class-B office loans.

The office sector is being weighed down by the highest average national vacancy rate in 30 years and by corporate layoffs, which are shrinking space demand.

U.S. banks, particularly regional and smaller banks, have been the lifeblood of CRE lending. But they are slowing loan activity amid deteriorating fundamentals and aftershocks of the collapses of Silicon Valley, Signature and First Republic banks.

More than 570 U.S. banks have exceeded regulatory guidance on commercial real estate loan concentrations during the first quarter, an increase of 30%, according to the U.S. Government Accountability Office.

Fifth Third’s office portfolio has an average loan-to-value range of 55% to 60% and an average loan size of $9.5M, according to its presentation. Commercial loans of all types make up nearly 13% of all of the Cincinnati-based bank’s overall loan portfolio, with 33% of its construction lending geared to the multifamily sector, the bank said.