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Euro Banks 1H24: Commercial Real Estate Risk
Simon Adamson - Head of Financials
Jennifer Ray - Head of Northern European Banks
Paola Biraschi - Head of Southern European Banks
Puja Karia - Head of Western European Banks
Feargus Haston - Analyst, Banks
EXECUTIVE SUMMARY
- European banks’ commercial real estate exposure (CRE) has been a focus for the market this year, although concerns have eased, as broadly speaking, provisions so far have been minor.
- While the CRE sector is facing several cyclical and structural pressures, with the Office segment the weakest, banks’ lending is by nature collateralised, and LTV ratios are low, which offers protection against falling property valuations.
- At this stage, while we think loan impairments on CRE could well rise in 2H24, we do not see the sector as posing a major threat to banks’ asset quality. Anecdotal evidence suggests the worst of the CRE downturn might have passed.
- Unfortunately, the definition of CRE is somewhat subjective, and banks’ disclosure is patchy and non-uniform, making it difficult to compare banks on a like-for-like basis.
Banks’ end-1H24 lending to ‘Real Estate Activities’ (RE) under the
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