ECB Scrutiny Banks’ Commercial Real Estate Loans
Regulator is said to ask valuers to explain their methodology
Several European banks piled into CRE lending over the last decade to buoy revenue as negative interest rates eroded profitability.
But the asset class was already hit hard by the rise of work from home and online shopping during the pandemic, before rapid increases in interest rates depressed demand further.
Prices have plunged in the US and UK and have started to decline in eurozone markets including Germany.
Valuers typically take recent comparable deals into account when appraising properties, but a lack of deals has made it harder to judge where values should be set. That’s because sellers have been reluctant to accept prices that are significantly below book values.
Regulators are concerned that appraisers and banks have been slow to mark prices down as a result, the people said.
Bloomberg 10 October 2023
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