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Moody's Could Downgrade 6 U.S. Banks Over CRE Exposure


Ratings agency Moody's said it is placing six regional U.S. banks under review for a ratings downgrade on their debt because of their substantial exposure to commercial real estate loans. 


The ratings provider placed First Merchants Corp., F.N.B. Corp., Fulton Financial Corp., Old National Bancorp, Peapack-Gladstone Financial Corp. and WaFd Bank on review for a downgrade, Bloomberg reports. The regional banks have a sizable amount of CRE loans on properties staring down profitability pressures and declining asset quality, while heightened interest rates are increasing long-term risks, Moody's said.

Many regional banks doubled down on CRE during the low-interest-rate climate prior to rate hikes from the Fed, building and maintaining substantial exposure to a “volatile asset class,” Moody's said in a statement. Regional banks with exposure to the sector have come under scrutiny by investors after a regional bank stock sell-off earlier this year triggered by New York Community Bancorp, CNBC reported.

The percentage of nonperforming CRE loans in U.S. banks' portfolios doubled to 0.81% at the end of 2023, up from 0.4% in 2022, according to the International Monetary Fund's semi-annual Global Financial Stability report.

Banks are allocating more funds to cover potential losses from bad CRE loans, the IMF said in its report.