ORLANDO — Bank examiners’ emphasis on commercial real estate loans has become much greater in the past year, community bankers say.
In an annual survey released Tuesday at the American Bankers Association’s National Conference for Community Bankers here, 38.7% of the 656 bankers responding said that commercial real estate was the main focus in their most recent examinations, up from 26.8% the previous year.
The Bank Secrecy Act finished a close second, with 34.7% of community bankers saying this law was examiners’ top concern. It had ranked first the previous year, when more than half — 51.9% — identified it as getting the heaviest emphasis in their exams.
The shift in focus to commercial real estate comes as concerns about the economy and weak housing market put regulators on alert.
They have been warning banks against building up large concentrations of commercial real estate loans for more than a year, said Steve Cocheo, the executive editor of ABA Banking Journal, which has done the survey of community bankers each fall for the past 12 years. “Now the rubber is beginning to meet the road, and CRE is coming up in formal examinations.”
Stephen P. Wilson, the chairman and chief executive officer of LCNB Corp. in Lebanon, Ohio, said a fall exam there focused firmly on commercial real estate, which makes up about 35% of his company’s $447 million in loans.
Many in the industry worried that examiners might require more capital to be held, he said, depending on the percentage of commercial real estate loans in a company’s portfolio.
But to his relief, when examiners from the Office of the Comptroller of the Currency visited his $600 million-asset company, they mainly wanted to review the procedures for monitoring those loans, Mr. Wilson said. “As a banker, that’s what you want them to do,” he said.
Regulators said they are not surprised that bankers reported greater scrutiny of their commercial real estate lending.
The Federal Deposit Insurance Corp. is particularly concerned with construction and development loans because they can be riskier than other types of commercial real estate loans, said Steve Fritts, the associate director of the FDIC’s division of supervision and consumer protection.
“We know that is an area where the economy has softened tremendously, and a lot of the home builders are having difficulty,” he said.
The FDIC paid extra attention to such loans in markets where the housing sector was booming before a dramatic slowdown last year, including Florida, California, and Arizona, Mr. Fritts said.
Though a few banks are struggling, most seem to be managing the risks well, despite a general increase in nonperforming loans, he said.
