Banks reduced their holdings of foreclosed real estate last year for the first time in 13 years, according to an American Banker survey.

The results, reflecting aggressive sales of bad assets, provide evidence that banks are extricating themselves from the commercial real estate quagmire.

The "other real estate owned" line on the industry's ledger - representing foreclosed property - fell nearly 5%, to $26.3 billion. It was the first decrease since 1979.

Noncurrent Loans Down

At the same time, noncurrent real estate loans - those past due at least 90 days or on nonaccrual status - fell to $27.2 billion from a peak of $31.9 billion at the end of 1991. It was the first year-to-year decline since 1988.

Analysts said banks were helped by lower interest rates. The lower cost of money made real estate more appetizing to investors and made it easier for marginal borrowers to refinance and keep their loans current.

In addition, banks were better positioned to take the losses needed to sell devalued real estate holdings.

"Keep in mind that the banks have been very aggressive in building reserves. That means they have considerable flexibility in working with buyers," said Sandra J. Flannigan of Merrill Lynch & Co.

Indeed, real estate chargeoffs rose to $8 billion in 1992, from $7.7 billion in 1991.

Citibank, one of the largest holders of commercial real estate loans, managed to reduce noncurrent loans by $400 million, to $2.8 billion. Its noncurrent loans equaled 32% of equity capital, compared with 43.1% at the end of 1991.

The Citicorp unit charged off $1.1 billion in 1992, more than twice the 1991 total.

Up and Downs in California

Also noteworthy, especially considering the poor economic conditions in California, was First Interstate Bank of California, which reduced its portfolio of seized property to $46 million from $127 million.

The main unit of Los Angeles-based First Interstate Corp. also reduced noncurrent loans, to $275 million from $401 million.

First Interstate's success stemmed partly from lessons learned in the bank's ill-timed expansions into Arizona and Texas in the 1980s. Analysts said First Interstate recognized the decline in California early and responded aggressively.

Problems continued to mount for First Interstate's California neighbors. Noncurrent loans at San Francisco-based Bank of California rose to $560 million - equal to 100% of equity capital - from $470 million at the end of 1991.

At Wells Fargo Bank, a $128 million reduction in foreclosed property was offset by a $259 million increase in noncurrent real estate loans.

Northeastern Woes

Meanwhile, although problems seemed to recede in the Southeast, the burden remained heavy on some northeastern banks.

New Jersey-based Midlantic Corp., for example, still had noncurrent loans equal to 71% of equity capital, even after reducing noncurrent loans by $163 million and foreclosed real estate by $112 million.

The balance-sheet cleansing was progress for banks but did little for construction and development. "In 1992 we saw the big drop-off' in construction and development loans, said Steven Wechsler, president of the National Realty Committee, which represents lenders, builders, and developers in Washington.

Bank holding of these risky loans declined by 23.4% last year, to $78.7 billion. That followed smaller reductions in some preceding years, when banks were still making loans under commitments made in the 1980s, Mr. Weschler said.

"We see the seeds of a future recovery, as the market tries to come back to some equilibrium," Mr. Wechsler conceded.

But he argued that capital for real estate was only slightly easier to come by, and he applauded efforts by the Clinton administration to make it easier for banks to refinance loans.

Not surprisingly, the trends were more pronounced for those banks that did most of the real estate lending.

The 100 biggest real estate lenders reduced their total real estate loans by 4.5%, to $181.7 billion. The industry as a whole scored a 3.9% reduction, to $383.4 billion.

The bigger lenders sustained most of the chargeoffs, too. The top, 100 charged off 3.5% of all real estate loans, compared to 2.1% for the industry at large.

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