All articles tagged with #bad loans
Concerns about souring loans and risky lending practices have caused shares of regional banks and Jefferies to decline, amid auto industry bankruptcies and exposure to bad loans, raising fears of a potential banking crisis, although overall market impact remains limited so far.
Deutsche Pfandbriefbank, a German lender focused on real estate, has increased its provisions for losses on loans in anticipation of the worst decline in commercial property values in 15 years, setting aside as much as €215 million for the year due to the persistent weakness of real estate markets. This comes amid concerns about mounting losses on lending to the troubled commercial property sector, with banks in various countries reporting significant losses and setting aside large amounts to absorb potential defaults on commercial real estate loans.
The largest US banks are expected to experience a significant increase in bad loans, reflecting the financial impact of the ongoing economic challenges.
Chinese banks are increasing the sale of bad loans at a record pace as regulators push for faster disposal of sour debts amid rising consumer defaults during an ailing post-COVID economic recovery. The issuance of securities backed by non-performing loans (NPLs) is set to jump about 40% from last year to a record high. This week alone, six banks plan to issue $210.49 million worth of asset-backed securities (ABS) based on bad loans. Chinese authorities have blacklisted 8.57 million people who missed payments, up 50% from the beginning of 2020. The booming market for bad loans highlights the challenges facing China's banking sector as it grapples with a real estate crisis, local government debt woes, and rising individual delinquencies.
Bank of Montreal (BMO) and Bank of Nova Scotia (Scotiabank) missed analysts' estimates for quarterly profit as they set aside more funds to cover bad loans. The Bank of Canada's interest rate hikes have slowed the housing market and increased consumer debt, leading to higher provisions for potential loan losses. BMO's earnings were also affected by severance costs and legal provisions, while Scotiabank highlighted the impact of recessionary conditions on its international business. Both banks experienced a decline in income, but Scotiabank showed improvement in its capital position and expense management. The aggressive rate hikes have allowed banks to charge higher rates and boost net interest income.
Charlie Munger, vice chair of Berkshire Hathaway, has warned that US banks are "full of" bad loans on commercial property. He observed that banks were already retreating from commercial property and that "every bank in the country is way tighter on real-estate loans today than they were six months ago."
Commercial real estate lenders are preparing for an increase in bad loans in their portfolios, which could limit their ability to provide financing at a time when borrowers are already having trouble getting it. Banks and commercial mortgage REITs have been adding to their best-faith estimates of future bad loans. The bad-loan reserves are required under a new rule from the Federal Reserve and other regulators to prevent some of the mistakes from the Great Financial Crisis. The new accounting standards could make it more difficult to write new loans, reducing the capital a lender has on its books.