Fitch Ratings said Monday that regional mid-sized and small banks face much greater risk from the commercial real estate slump than bigger rivals.
The smaller banks are expected to see more ratings downgrades than bigger players after Fitch completes an ongoing commercial real estate review, the ratings agency said.
Fitch maintains ratings for 36 mid-sized and small banks with less than $20 billion in assets. In that group, commercial real estate exposure represents more than one-quarter of total loans outstanding, Fitch said.
In contrast, none of the four-largest U.S.-based banks has greater than 10 percent exposure to commercial real estate.
Fitch said risks from bad commercial real estate loans are "sizable but generally manageable," particularly among bigger banks.
U.S. banks had about $1.1 trillion of commercial real estate loans outstanding as of June 30, with about half the total held by banks that Fitch rates. The ratings service estimates about 10 percent of that total is exposed to potential losses. The figures do not include about $500 billion in construction loans that Fitch said are subject to even greater risk.
"Loan losses are increasingly likely given the expectation for ongoing declines in commercial real estate markets," said Thomas Abruzzo, a Fitch managing director.
For most banks, Fitch said downgrades due to commercial real estate exposure are likely to involve cuts of no more than one notch on Fitch's ratings scale.
However, Fitch added, "the possibility of more significant downgrades is quite possible among the banks with the greatest exposure."