Assessing CRE Credit Risk in Bank Loan Portfolios Globally: Better Disclosures Would be Applauded

DBRS, Inc. (DBRS Morningstar) published a commentary highlighting the factors that influence the assessment of commercial real estate (CRE) credit risk in loan portfolios. CRE lending is more cyclical and volatile than other types of lending, as evidenced by the significant amount of crises experienced over the past several decades, which resulted in a large number of bank failures. Consistent with historical trends and given the nature of the current coronavirus-driven downturn, we expect banks with high concentrations of CRE will be more vulnerable to the economic fallout than those with more diversified loan portfolios.