US banks' owner-occupied CRE delinquencies crept up in Q3 2024

Delinquencies on US banks' commercial real estate loans on owner-occupied properties climbed sequentially in the third quarter, narrowing the gap in credit quality between owner-occupied and nonowner-occupied properties.

Across the US banking sector, the delinquency rate for loans on nonowner-occupied properties has been significantly higher than the rate for owner-occupied properties since the start of 2023, driven by elevated delinquencies in loans on nonowner-occupied properties at banks larger than $100 billion in assets. That gap persisted in the third quarter but narrowed slightly as delinquent owner-occupied loans at large banks rose.

At banks larger than $100 billion in assets, the delinquency rate on commercial real estate (CRE) loans backed by nonowner-occupied properties was 4.97%, up 3 basis points from a quarter earlier. The delinquency rate on loans linked to owner-occupied properties was 1.19% at banks of the same size, a 20-basis-point rise from the prior quarter.

Among the largest banks, the net charge-off rate for loans backed by nonowner-occupied CRE properties fell by 46 basis points sequentially to 1.16%.

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Large-bank delinquencies

Among banks with at least $5 billion in total CRE loans as of Sept. 30, Morgan Stanley had the highest concentration of loans on nonowner-occupied properties, at 97.9%. The delinquency rate in the portfolio was 5.11%, and the ratio of net charge-offs to average loans in the third quarter was 1.79%.

Nonowner-occupied loans were 96.9% of the $6.79 billion in CRE loans that Goldman Sachs Group Inc. reported in regulatory filings. That portfolio, which represented a portion of Goldman Sachs' firmwide CRE exposure, continued to shrink in the third quarter from $7.31 billion a quarter earlier and $7.50 billion in the first quarter. The nonowner-occupied delinquency rate in the portfolio fell to 9.41% in the third quarter from 10.22% a quarter earlier.

Other large banks with relatively high delinquency levels in nonowner-occupied CRE portfolios included Wells Fargo & Co., with a 6.34% delinquency rate, and Citizens Financial Group Inc., with a delinquency rate of 6.27%.