Bank CRE Loan Modifications Keep Climbing

The analysis was of 39 U.S. banks. Stephen Lynch, vice president and senior credit officer at Moody’s Ratings, tells GlobeSt.com that the firm examined about 65 rated banks in the first round of the reporting, however, only 39 banks disclosed data. The banks did not generally disclose the number of loans they had. “When it was, it was an issuer saying X number of loans were modified when X was a small number,” Lynch says.

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It was a 35% increase from the 48 basis points in the six months ending June 30, 2024. However, last year the jump was a higher percentage, though not a higher total. In 2023, the change from the six-month to nine-month period was a 50% increase from 18 basis points to 36 basis points.

There were some significant differences in change between banks with more than $100 billion in assets, banks with between $100 billion and $700 billion, and banks with less than $100 billion. The median percentage for the middle group was a 61% increase from 120 basis points to 193 basis points. For the largest banks, it was a 14% increase from 69 to 79 basis points. And for the smallest, it was a 217% increase from 10 to 32 basis points.

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The higher increase among the smallest banks might seem concerning, but they also had the smallest percentage of modifications. The largest banks had the smallest increase and the middle largest final percentage, although chances are they might have included the largest loans. The middle-sized banks, though, by far had the biggest set of modifications at 193 basis points and the second largest percentage increase.

Lynch’s view: “It is something to watch and to take into account relative to other rating factors we consider — capital, profitability, asset quality, funding and liquidity.”