(Bloomberg) — Moody’s Ratings said at least six U.S. regional banks with substantial exposure to commercial real estate lending are at risk of having their debt ratings downgraded.
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The long-term ratings of First Merchants Corp., FNB Corp., Fulton Financial Corp., Old National Bancorp, Peapack-Gladstone Financial Corp. and WaFd were assessed by the rating provider for downgrade.
Regional banks with a substantial concentration in commercial real estate lending face continued pressure on asset quality and profitability as higher interest rates increase existing risks, especially during cycle downturns, Moody’s said in separate statements.
During the low interest rate environment prior to the start of the Federal Reserve’s rate hike cycle, many regional banks opted to build and maintain meaningful concentrations in commercial real estate, which is a “volatile asset class” according to Moody’s. . At Fulton, for example, the asset class represents 267% of tangible common stock as of March 31, according to Moody’s.
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