Magazine article American Banker

OCC Eyes Real Estate Lenders, Start-Ups in Problem Areas

Magazine article American Banker

OCC Eyes Real Estate Lenders, Start-Ups in Problem Areas

Article excerpt

Small commercial real estate lenders and start-ups are making loans in financially stressed regions and are increasingly vulnerable to the effects of the lagging economy, the Office of the Comptroller of the Currency said Tuesday.

Agency officials also warned that even though bank earnings reached record levels in the fourth quarter, mostly from gains on securities sales, they did not expect that trend to continue this year.

"We will see a reduction in the earnings from net interest income in particular," Nancy Wentzler, the OCC's deputy comptroller for global banking and financial analysis, told reporters at a press conference. "But remember, we are coming off ... a very rarified atmosphere of very high earnings" over the past several years.

In its quarterly "Condition of the Banking Industry" report, published Tuesday, the OCC said 29% of the national community banks that specialize in business real estate lending are operating in areas where unemployment growth is higher than the national average. Agency officials said these institutions require close scrutiny.

"They may see not only stress in their business real estate portfolio, but also might see a little bit of stress in their consumer real estate portfolio, which is ... something we have to watch carefully," Ms. Wentzler said.

In its report, the agency noted that business real estate exposure has steadily risen at national banks with less than $1 billion of assets, to 31.2% of all loans in the fourth quarter, from 28.7% a year earlier.

And Ms. Wentzler said that nearly 24% of start-up national banks are operating in high-risk economic areas.

"We are spending quite a bit of time looking at these guys" in addition to the business lenders, she said. "These are new banks; they have to get their footing. Much of the economic research suggests it almost takes seven years for a de novo to reach full maturation, and what you don't need is stress on top of that. …

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