Commercial real estate prices have plunged this year as people stopped going into offices, and retail businesses were disrupted. That could lead to a significant amount of losses for banks, according to a recent report.
In previous downturns, commercial property loan losses were “heavy” and there are worrying signs that such a trend could be repeated this time during the coronavirus-induced slowdown, Oxford Economics’ Adam Slater said in a report.
In a worst-case scenario, Slater said these loan losses would “materially erode” bank capital.
“Large (commercial real estate) price declines generally translate into big losses for banks. Write-offs of (commercial real estate) loans made a big contribution to overall bank losses in the last two major downturns,” wrote Slater, an economist at the firm.
Click here to read the rest of the article written by Weizhen Tan over at CNBC
