WASHINGTON, May 11 ― The Federal Reserve said yesterday that the US banking system remains resilient, but warned that delinquency rates were rising for commercial real estate and consumer loans.
“Delinquency rates for some commercial real estate loans and some consumer loans have increased to above pre-pandemic levels,” the Fed said in a report on banking supervision and regulation.
The commercial real estate (CRE) sector, which includes offices, has struggled since the pandemic, when white-collar workers adopted work-from-home policies that dramatically cut the amount of time they spent in the office.
The sector has also been buffeted by the Fed's decision to hike interest rates and hold them at a 23-year high, which has raised the cost of borrowing for consumers and businesses alike.
Although office occupancy rates have rebounded somewhat, they remain stuck below pre-pandemic levels. That has caused headaches for the banks left holding CRE loans as they grapple with delinquency rates at a half-decade high of 0.9 per cent, the Fed said.
Consumer loan delinquencies have also increased, while the credit card loan delinquency rate hit a five-year high of 1.7 per cent at the end of 2023, the Fed said in its report.
Because of the “weak outlook” for CRE office and credit card loans, banks have “boosted the allowance for credit losses in anticipation of further deterioration in asset quality,” the Fed added. ― AFP
